From Duck Eggs to Fiscal Deficit, the Journey by Indonesia's Economics Minister

By Randy Fabi & Eveline Danubrata 30 October 2014

JAKARTA — Born in poverty in a rebel stronghold, Indonesia’s new chief economics minister once sold duck eggs on the street to pay his school fees.

Sofyan Djalil later studied law in Indonesia and then went to Tufts University in the United States where he received two masters’ degrees and a doctorate. A decade ago, he became a minister in the cabinet.

He will need all that ability to overcome disadvantages as he takes on the uphill battle to revive Southeast Asia’s biggest economy from its worst slowdown in five years.

When President Joko Widodo announced on Sunday the little known 61-year-old technocrat would be his economic “captain at the helm,” markets were unimpressed and reacted little the following day.

Investors were hoping an experienced economist would take the reins, such as World Bank Managing Director Sri Mulyani Indrawati or central bank Governor Agus Martowardojo.

“[Djalil] is reportedly close to Vice President Jusuf Kalla, and might have to work doubly hard to prove that his appointment is not purely on that basis alone,” said Wellian Wiranto, an economist at Singapore’s OCBC Bank.

Kalla and Djalil were both in the first administration of former President Susilo Bambang Yudhoyono, but neither figured in his second 2009-2014 cabinet.

When Kalla was elected as Widodo’s running mate, many expected Djalil would make it to the cabinet, but his wife said the appointment came as a surprise.

“He found out he was going to be appointed chief economics minister three or four days before the announcement,” said Ratna Megawangi, Djalil’s wife for 32 years. “It was last minute.”

Djalil is known for achieving results from people and getting rid of those who perform poorly, colleagues said. As minister, he placed newly hired company directors on one-year probationary periods, and worked to remove political appointees from the boardrooms of state-owned firms.

“He is a person who doesn’t have any hesitation to replace people because he is very honest, his integrity is high and he doesn’t compromise. That is one of his greatest strengths,” said Tanri Abeng, a former state-owned enterprises minister who Djalil assisted in 1998-99.

Approaching Disaster

In his current job, Djalil has his work cut out for him, with a potential fiscal disaster fast approaching.

A huge shortfall in tax revenue threatens to bust a legal limit that could place his new boss into a political crisis in his first two months in office.

The quickest solution is to cut ballooning fuel subsidies, a politically difficult move that in the past has led to violent protests and contributed to the downfall of long-time autocrat Suharto in 1998.

As economics supremo, Djalil will have to deal with the fallout of a potential fuel price hike and ensure the 10 ministries that he oversees, from finance and trade to agriculture and state-owned enterprises, keep to the president’s vision.

While slashing the deficit, he also has to revive economic growth and crank up Indonesia’s creaky infrastructure.

Gross domestic product grew by 5.1 percent on an annual basis in the second quarter, the slowest pace for five years.

Indonesia’s inadequate roads, ports, electricity and other basic services, along with its corruption and daunting bureaucracy, have begun to disenchant foreign investors, who are essential for the resource-based economy to grow.

“The configuration of the cabinet suggests that President [Widodo] plans to lean on Sofyan very heavily,” said John Kurtz, head of Asia Pacific for the consulting firm A.T. Kearney.

“He is a skilled and diplomatic operator, who listens, chooses his own inner circle well, and shows support and loyalty to those he respects.”

Reading Scraps

Djalil didn’t have many books growing up in a small village, and Megawangi said he told her he would instead read the newspaper scraps that covered the food brought home by his father, who was a barber.

“Every day he would wait for his father so he could read,” she said, recalling Djalil’s description of his childhood. “He was always disappointed when he would start reading articles and the end would be torn off.”

His strong desire to educate himself opened up the opportunity to leave his village and get a degree at University of Indonesia in Jakarta, and study at Tufts in Massachusetts.

Djalil, an expert on corporate governance, returned to Indonesia to work as a consultant for state-owned companies like flagship airline PT Garuda Indonesia Tbk and PT Telekomunikasi Indonesia Tbk.

The father of three eventually became the communications minister in 2004 and state-owned enterprises minister in 2007. Colleagues said he found the latter job frustrating.

In his two years as minister, Djalil led a major campaign to set up a large holding company, along the lines of state investors like Singapore’s Temasek Holdings and Malaysia’s Khazanah Nasional Berhad, but he failed to get the backing of the finance ministry and parliament.

“He attempted to create holding company structures to leverage on the scale of the SOEs but didn’t receive much in the way of political backing,” said Keith Loveard, head of risk analysis at Jakarta-based security advisory company Concord Consulting.

“It remains to be seen whether he will be any more influential in his new job.”

Djalil’s supporters say he likes the challenge of being underestimated and unpopular and his biggest success in government reflects that.

He was the senior government negotiator in talks in the 2000’s with Acehnese rebels to end a 30-year-old insurgency in his home province.

After years of being considered a traitor by some in Aceh, Djalil was able to return home to visit his mother for the first time in a decade after helping to reach a landmark peace accord in 2005.

“It was an emotional reunion with the villagers and his mother as they felt the freedom from fear,” his wife Megawangi said. “It was a spiritual moment for him that he played a role in all of this.”