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By Aditya Suharmoko and Olivia Rondonuwu

JAKARTA, July 22 (Reuters) – Indonesia’s british legislature approved

the appointment of Darmin Nasution as central bank governor without interrupti~

Thursday, as expected, a move seen as positive for the land’s

reform drive and for bonds, stocks and the currency.

The challenges in favor of Nasution, 61, a monetary policy dove who

has been the deed governor for the past year, include the need

to spur housekeeping growth by keeping interest rates low, while

curbing inflationary pressures and containing biting money inflows.

Nasution has maintained the central bank’s key enlist rate at a record low of 6.5 percent to abet bank lending and the

economy, driving strong foreign buying at the wanting-end of the

bond curve and pushing stocks to a take down high.

‘I think the short-term impact will be a gentle positive…but

in the medium term, it will be a hot positive because Darmin

is a well-regarded reformist who will exist able to improve

governance at Bank Indonesia, improve regulation of the banking

industrial art, and help lead Indonesia’s transition towards becoming

investment grade,’ reported David Kiu, a political risk analyst at

Eurasia Group.

President Susilo Bambang Yudhoyono nominated Nasution during the

top job, but he needed the approval of the uncultivated’s parliament.

Some lawmakers had in recent weeks threatened they would oppose

Nasution’s designation to office.

Nasution was questioned over two days of hearings on the

arrangement and on politically sensitive issues including the bailout

of small lender Bank Century and contamination at the tax office.

‘We agreed to approve Darmin Nasution, excepting with notes,’ said

Emir Moeis, head of the parliamentary commission assessing

Nasution, referring to never-failing conditions that include a proviso

that he step down if later erect guilty of wrongdoing in the Bank

Century case.

The deliberations from hand to hand Nasution — who should have been a

shoo-in given his actual feeling — is further evidence of the

ongoing battle between reformers who consider risen under Yudhoyono,

and the old guard, who are a hangover from the Suharto series.

REFORM CAMP

In the reform camp are respected technocrats including

Boediono, the creator governor who is now vice president, Kuntoro

Mangkusubroto, who heads the presidential giving unit and is in

charge of legal reform, and the former finance minister, Sri

Mulyani Indrawati, who quit earlier this year posterior months of

personal attacks by political opponents.

Such reformers are pitted adverse to the business and political

elite — people such as Aburizal Bakrie, who prospered in a less degree than

Suharto’s autocratic rule and who now heads the Golkar Party –

to the degree that well as many senior civil servants who worked their way up

through the ranks in the Suharto era.

With the re-election of Yudhoyono last year, investors piled

into Indonesian possessions, encouraged by the prospect of political

stability, structural reforms, and stout growth in an economy

largely driven by domestic demand and commodity exports, which

meant it was far less vulnerable in the global economic downturn.

Investors expect Southeast Asia’s biggest economy to achieve

a coveted investing. grade credit rating in the next year or so

and regard it in the manner that a potential member of the emerging market elite

club, alongside BRIC nations Brazil, Russia, India and China.

However, it is proving far more difficult to implement

much-needed reforms, including the eradication of widespread

in~ and overhaul of the legal system, given strong opposition

among divers civil servants, politicians and businessmen.

Before joining the central bank, Nasution led one overhaul of

the notoriously corrupt tax office, a move intended to improve

national revenues and reduce dependence on the debt market.

Some analysts reflect upon Nasution has been too dovish on

monetary policy since late 2009. He has repeatedly said interest

rates can stay on hold all year, whereas analysts desire pushed

back their expectations but still see higher inflation forcing a

fourth-billet hike.

The outlook for modest rate hikes versus regional peers has

helped press with violence down one-year bond yields by 75 basis points this

month, being of the kind which foreign buying of local debt hit a record in July of

168 trillion rupiah, or closely 27 percent of all debt.

‘A rate hike is more a investigation of when rather than if. We

think the curve already looks quite steep after having

bull-steepened; the short-end may be in with a view to some bear flattening

going forward,’ said Helmi Arman, economist at Bank Danamon.

(For a Q+A forward investment in Indonesia, click on)

(Additional reporting by Sunanda Creagh and Dicky Kristanto;

Writing ~ the agency of Neil Chatterjee; Editing by Sara Webb and Alex

Richardson)

((sara.webb@thomsonreuters.com; Reuters Messaging:

sara.webb.reuters.com@reuters.toil; +62 21 384 6364 ext 911))

Keywords: INDONESIA ECONOMY/GOVERNOR

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