Indonesian MPs air doubts over president's nominee for central bank

JAKARTA (Reuters) - The Indonesian president's candidate to become the next central bank chief ran into opposition on Monday, as two members of a parliamentary panel that decides on the selection questioned his suitability for the job.

Late on Friday, President Susilo Bambang Yudhoyono unexpectedly nominated Finance Minister Agus Martowardojo to replace Darmin Nasution, whose term as Bank Indonesia (BI) governor ends in May.

In his first public comments since being nominated, and which may rattle foreign investors, Martowardojo made clear that neighbouring Singapore would have to open up to Indonesian banks if it expected to go ahead with the major purchase of a local bank -- a deal that needs central bank approval.

The president has given no reason for pushing out the current governor, generally seen as having kept a firm hold on monetary policy, with inflation under control, though the rupiah currency has weakened sharply during his tenure.

"For the BI governor nomination, we don't only look at technical capability. We also look at integrity and national interest. Agus Martowardojo's involvement in the Hambalang (graft) case makes us doubt his integrity," said Dolfi OFP, a member of the parliamentary commission on financial affairs. The commission has the final say in the selection.

The member of the opposition Indonesia Democratic Party-Struggle (PDI-P) was referring to a corruption scandal surrounding the construction of the Hambalang sports complex.

The controversy has already toppled one minister and the chairman of Yudhoyono's ruling, but increasingly unpopular, Democratic Party.

Martowardojo was questioned last week by Indonesia's anti-corruption agency as a witness in relation to the case.

The announcement has had little impact on local financial markets, with one trader noting uncertainty over whether the nomination would be approved by parliament. The rupiah has fallen 0.8 percent since the beginning of the year and was emerging Asia's worst performing currency last year.

It is the second time Yudhoyono has nominated the career banker to head the central bank. Martowardojo was rejected in 2008, along with another candidate proposed by the president, though that was seen more as an attempt by parliament to flex its political muscle than any particular dislike of Agus.

The Dutch-born Martowardojo, 57, took over as finance minister in 2010 from the reformist Sri Mulyani Indrawati, who fell foul of members of the business and political elite with her anti-corruption drive.

Before that, he was credited with turning around the fortunes of the main state bank, Bank Mandiri.

Some media reports suggested that the commission might go back to the president and demand another candidate.

"Agus's understanding of macroeconomics is insufficient, which is important for a BI governor," Kontan daily quoted commission member Harry Azhar Azis as saying. Azis belongs to the ruling coalition member Golkar Party.

RECIPROCITY

The appointment could become the latest hurdle to a complicated $7.2 billion takeover proposal by Southeast Asia's biggest bank, DBS Group Holdings, which has been postponed for almost a year.

Martowardojo voiced his concern over the deal when it was announced last year and repeated his concerns on Monday.

"We believe that reciprocity is important as the main benchmark," he told reporters when asked his view of the deal, delayed for almost a year.

Indonesia's central bank and government have been pushing for equal treatment from Singapore's regulator for their banks to be allowed to operate in the city-state.

DBS, part-owned by Singapore sovereign investment arm Temasek Holdings, said last April it had agreed to take over Bank Danamon in a cash-and-shares transaction that would rank as Asia's fourth-largest banking deal.

It would make Singapore-based DBS the fifth-biggest lender in Indonesia, one of southeast Asia's hottest markets, where bank penetration is low.

Already politicised, the deal faces being left in limbo as the country faces general and presidential elections next year.

SENSITIVE TIME

The change at the central bank comes at an especially sensitive time in the run-up to next year's elections when Yudhoyono comes to the end of his second, and under the constitution, final term.

There is no clear front-runner to replace him.

There was media speculation that the reshuffle had as much to do with pushing Martowardojo out of the cabinet because of his very public opposition to two major issues involving influential businessmen.

There has been no word on who might be the new finance minister, if Martowardojo's appointment to the central bank goes through. Some speculation has focused on Deputy Finance Minister Anny Ratnawati, Trade Minister Gita Wirjawan, and investment chief Chatib Basri, all seen as close to Yudhoyono.

(Additional reporting Jakarta Bureau, Writing by Jonathan Thatcher; Editing by Ron Popeski)