UBS SRI GOES The bull case, the bear case, successors plus more

Flows

Despite the surprise news that Sri is leaving Indonesia, the JCI has held up strongly relative to the region. There is no initial bounce in BUMI (despite suggestions that a Sri exit reflects a Bakrie victory). BMRI is down, fuelling speculation that highly regarded CEO Pak Agus might be named Sri’s successor.


From the Ground – Sri Mulyani to leave with almost immediate effect

It’s just hit the newswires that Sri Mulyani Indrawati, Indonesia’s much loved reformist Finance Minister, has been selected to be a top advisor to World Bank President Robert Zoellick. It is reported that Sri will be based in Washington from 1 June. In other words, Sri is gone!

This is the day that many investors had feared. You will hear a lot about this in the next few days, and the markets will vote accordingly. Here are the bear and the bull case scenarios, a list of possible contenders and some stock thoughts:

The bull case:

· Sri is resigning only once confident in the knowledge that the Bakries have been defeated over the Bank Century affair.
· Sri is resigning only once confident that a competent successor, who will be well received by the markets, is waiting in the wings.
· The reform process will continue unhindered, with the President ensuring that we see acceleration in reform initiatives.

The bear case:

· Aburizal Bakrie has won, after all.
· The President is still under the sphere of influence of the Bakries, after all.
· That the reform process becomes derailed.

Our colleagues on the fixed income side of the business tell us that the markets will react negatively initially, and then all will depend on who is named as successor. Here’s our speculation as to possible successors:

· Anggito Abimanyu: Currently in the Ministry of Finance and Sri’s obvious successor from within the ministry. Was to be promoted to a Junior Minister within the government, before it was revealed that he did not have the required qualifications. Has a reputation for being indecisive, but may shine after emerging from Sri’s shadow.
· Darmin Nasution: currently Senior Deputy Governor of the Bank Indonesia. Perceived to be a more forceful personality and reformer than Anggito.
· Agus Martowardoyo: The highly regarded President Director of Bank Mandiri.

Watch for this from the markets:
If Bank Mandiri BMRI trades down: This is Good News: The market believes Pak Agus will be our next Finance Minister.
If Bumi Resources BUMI trades up: This is Bad News: The market expects Aburizal to emerge victorious from the ashes.
Hint: As we go to print, BMRI is down, BUMI is flat - the market is taking this news well.

Newsflash: A conversation with a contact at the World Bank suggests that this process will have taken many months and that in all likelihood a successor is in place and will perhaps be announced later today. He too was surprised that the announcement came from the World Bank rather than the Indonesian authorities.