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Indonesia’s finance minister Sri Mulyani Indrawati discusses geopolitics, economic reform, and being a role model for women

Over the past two decades, Indonesia has undergone a remarkable transformation. The Southeast Asian nation—a sprawling archipelago of 270 million people, stretching 3,300 miles from west to east, about the same distance as London to Kabul—has increased its GDP fourfold, to $1.4 trillion. The share of the population living on less than $2.15 a day has fallen tenfold, to less than 2 percent. In Jakarta, the capital, average income is about the same as in Poland and not far off from Portugal.

These two remarkable decades coincide roughly with Sri Mulyani Indrawati’s tenure as finance minister. She first took the job in 2005, during Susilo Bambang Yudhoyono’s presidency. Then, after working as a managing director at the World Bank in 2010–16, she returned to Indonesia to become President Joko Widodo’s finance minister. She was reappointed in October, when a third president, Prabowo Subianto, took office.

It would be a stretch to say that Indrawati, the daughter of university professors, who earned a PhD in economics in the United States, led this transformation single-handedly. But she played an important part. From the global financial crisis to the COVID pandemic, she steered Indonesia through economic shocks and has been a steadying presence for domestic and foreign investors alike. She strengthened the country’s macroeconomic foundations, broadened the tax base, and capped budget-busting subsidies. At the finance ministry, she set high standards, sweeping out the work-shy and the greasy-palmed.

On a visit to Washington in September, Indrawati spoke to F&D about Southeast Asia’s largest economy and the challenges facing emerging market economies.

F&D: Geopolitical divisions have deepened, and there’s talk of a new Cold War. Are you concerned about these developments, and how can countries like Indonesia navigate them?

SMI: Geopolitical tension is not new. When Indonesia declared its independence in 1945, it was a tense time, with conflict between colonialists and anti-colonialists. And later our region was drawn into competition between the United States and Soviet Union. As a newly independent country, Indonesia didn’t want to take sides. That’s why we initiated the nonaligned movement, 75 years ago.

Indonesia strives for a world order based on freedom, peace, and social justice—these principles are written into our constitution. The world is a better place when countries cooperate. The IMF and World Bank are based on the belief that cooperation provides better results for everyone. And over the past 30 years the world has made great progress reducing poverty, sharing prosperity, and opening up to globalization. Now suddenly those ideas—and the institutions that underpinned them and enabled countries to make progress together—are being called into question. And that’s certainly being felt in Indonesia.

But Indonesia is in a stronger position today to influence global events and act as a mediator between the superpowers. It’s not easy with the shift toward nationalistic inward-looking policies that have implications not just for US-China trade but also for trade and investment in our region. Fragmentation sometimes reflects difficult-to-reconcile ideological divisions. But because of Indonesia’s size and leadership among emerging economies, we can offer constructive solutions. That was very obvious during our G20 presidency in 2022. Even after the Ukraine war, we tried to build cooperation between the US and China and strengthen the G20 dialogue platform. And I think our efforts were appreciated and well received.

F&D: Indonesia is one of the world’s fastest-growing major economies. It’s a striking turnaround since the Asian crisis and even the 2010s, when the country was seen as one of five “fragile” economies. What explains its success?

SMI: Restoring macroeconomic stability and the credibility of macroeconomic policy was the most important factor. We established an independent central bank and consolidated financial sector supervision and monitoring. We’ve been fiscally prudent in terms of our budget deficit and debt-to-GDP ratio.

We created market infrastructure to become more competitive. We opened up to international trade. Most recently we revised our investment law. We did this during the COVID-19 pandemic, when the world was deep in crisis. Indonesia used the crisis to push even more reform.

We’ve also invested in infrastructure—roads, ports, electricity, telecommunications—to close a competitiveness gap with our neighbors. We’ve invested in human capital, too. Today we spend 20 percent of our budget on education, and a new scholarship fund has paid for 50,000 people to study at the world’s best universities. You cannot fund everything with public money, of course. So we’ve developed public-private partnerships and continue to improve our business and investment climate.

When we were one of the fragile five, we had large current account and primary fiscal deficits. Any movement in the currency or interest rates could trigger a crisis. Today our accounts are in surplus, and the financial sector is resilient. We’ve done a lot of work to build our economic resilience. We made a concerted effort not to be a fragile economy—it wasn’t something that happened by itself.

F&D: Indonesia is pioneering industrial policy, especially in extractive sectors related to electric vehicle batteries. Some economists say export bans are protectionist. Would you recommend this approach to other developing economies?

SMI: Indonesia is a resource-rich country, but our current account deficit created fragility. We needed more capital to build stronger foundations. We had those objectives in mind when it came to our downstreaming policy. It’s not something that we’ve done suddenly. In some cases negotiations started in the 1990s.

You must add more value in your own country. But we don’t force companies to build at all costs and then expropriate their investment. That isn’t the Indonesian approach. We are upgrading our infrastructure and improving our investment climate with changes to competition, labor, and environmental laws to create a welcoming ecosystem. We provide companies with tax and other incentives so they can be competitive. But at the same time we tell mining companies they cannot export unprocessed minerals, and they must build smelters. This is a win-win. Indonesia’s economy becomes more resilient, and investors can make a profit. We’re growing stronger together. 

F&D: As a technocrat without the backing of a powerful political party, how did you push reforms that were sometimes controversial?

SMI: Indonesia’s political momentum toward democracy and openness was important. After the Asian crisis, people wanted to see the country make progress, led by accountable and clean corruption-free governments. People’s aspirations for a better country are a very strong force that you must respond to, whether a politician or technocrat.

But even with this political momentum, not everything will be easy. There are always status quo interest groups that will resist if they feel threatened. So you must convince people of your case, whether it’s taxes, subsidies, state enterprises, or reform at the finance ministry itself. You must convince your biggest skeptics: I don’t avoid them; I reach out to them. You must create confidence through conversation that the objective is not to attack them but to build a better Indonesia that will be better for them, too.

You must be honest that reform won’t always be easy. You must anticipate difficulties and explain them. Even so, there will always be different views about whether a certain policy should be adopted and who will benefit. Some people may suffer from price increases, for example. Here reform is very detailed, intensive work. You must face up to this and develop a dialogue. Even politicians, bureaucrats, and civil society activists are human beings at the end of the day!

I draw a lot of political support from the Indonesian public. Because we’re now a democratic country with a free press, I reach out to chief editors, reporters and explain what I’m doing, and they often become allies. They believe in the idea and the objective. And that’s become a powerful political force to counter those who oppose reforms.

I believe that if you convince people that you’re sincere in wanting to improve the country’s situation and have put aside any personal interests, then they will trust you. 

F&D: You’re one of three external advisors to the IMF–World Bank Bretton Woods at 80 initiative. How can these institutions remain relevant for all their members?

Resources are important. Do these institutions have enough capital resources and human resources? Do they have the right instruments to deal with a diverse set of problems? This is especially relevant for the IMF because it used to focus on narrow issues, like exchange rates, the monetary system, financial stability. Now it must also deal with climate change, demographic challenges, digital technology, social safety nets. It creates a prioritization challenge.

Maintaining international cooperation over the next two decades will be key to a successful Bretton Woods centenary—cooperation not only among the membership but with other global players, including private nonstate actors. They are becoming dominant in digital technology. The IMF and World Bank are based on sovereign membership, but you see a concentration of capital and power outside the sovereign space. Development can’t be driven only by the public sector and public funds. You must create a catalytic partnership with the private sector. This will be critical to the success of the Bretton Woods institutions over the next 20 years.

F&D: You’ve become a role model for women in Indonesia. How do you feel about this?

SMI: When I first became finance minister in 2005, there were no women in top management at the ministry. There are now, but they’re still a minority. I’m aware that I’m in the public eye and have a responsibility to live up to expectations. And that’s really hard. It requires personal discipline. People expect you to do a lot of good. I still have fun—I can sing, I can run. But I know I’m always under scrutiny. 

I’m not intentionally building myself up to be a role model. But women ask me a lot of questions. How can you do this job? How can you juggle family and so on? Sometimes people draw motivation from the stories of others. If I can provide motivation that makes them stronger, I feel very positively about it.

This interview has been edited for length and clarity.

NICHOLAS OWEN is on the staff of Finance & Development.

Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.