The Banker's Finance Minister of the Year 2019 awards celebrate the officials that have best managed to stimulate growth and stabilise their economy.
Global and Asia-Pacific
Sri Mulyani Indrawati, Indonesia
In 2018, Indonesia faced tragedy but the country maintained its resilience under the guidance of finance minister Sri Mulyani Indrawati.
The devastating earthquakes in Lombok in August 2018 had a huge impact on the island, with 563 fatalities recorded. A further 1300 people were injured, and 350,000 displaced by damage to their homes. The quakes caused massive infrastructure damage, estimated to be Rp5000bn ($342.6m).
In response to this, Ms Sri Mulyani set about modernising the country’s response to natural disasters through a new disaster risk financing and insurance strategy. Announced in October 2018, the strategy will insure public buildings from 2019, protecting them and helping to speed up the recovery process. Under the previous system, the country relied on a contingency fund of Rp3100bn annually, set aside from the budget to cover repairs after natural disasters.
The finance ministry itself suffered tragedy when 20 employees were killed on a Lion Air flight from Jakarta, which crashed in October 2018. Ms Sri Mulyani met with the family members of the passengers, and pledged the ministry would monitor the search mission and identification of bodies in order to assist the bereaved.
While dealing with human tragedy, the country has still seen impressive growth. The gross domestic product deficit for 2018 is forecast to be about 1.86%, lower than the 2.19% estimated in the 2018 State Budget.
The coming years hold ambitious plans to boost the position of Indonesia as a major Asian market. To boost income and stimulate growth, Ms Sri Mulyani has made a series of changes to the taxation system to increase revenues. One aim is to boost taxpayer compliance to 82.5% in 2019 – a sizeable increase from the 74% recorded in 2014. To facilitate this growth, the payment process will be simplified, and the number of locations where payments can be made will be increased.
In recognition of the complex legal and taxation systems in place, Ms Sri Mulyani also announced plans to reduce bureaucracy after the Global Competitiveness Report 2017 ranked Indonesia 41st out of 138 countries by this measure, a fall of four places on the previous year.
Tax cuts have been passed onto other areas to stimulate growth and support the economy. Income tax rates were cut for small and medium-sized enterprises, while a digital tax is to be imposed on e-commerce companies operating from overseas.
The tax will impact ‘big tech’ service providers, as these companies often avoid paying taxes quite legally due to having no physical presence in the county. The aim is to create a more competitive operating environment for domestic providers.
The tax facilities on Indonesian-owned export services has been reduced to 0% VAT rates in a bid to stimulate these businesses. Services covered in the exemption include legal, accounting and IT.
The changes to the tax system are integral to the finance minister’s aims of boosting state revenues by 12.9% to $146.5bn in 2019, with the increased income from tax predicted to represent 80% of the target.
Finance minister of the Year,
Europe
Mário Centeno, Portugal
Portuguese finance minister Mario Centeno can look back on his first 12 months as president of the Eurogroup with well-earned satisfaction. Marathon negotiations involving eurozone finance ministers in early December ended with the most significant reforms to the single currency bloc since the sovereign debt crisis. Agreement was reached on dozens of issues based around preventing and managing future financial crises.
Mr Centeno is gearing up for two even bigger policy challenges in 2019; one a pillar of the banking union, the other intended to buttress the credibility of the whole euro project. “Now we can concentrate on the European Deposit Insurance Scheme and the eurozone budget,” he says.
Mr Centeno was an unusual choice by his peers for one of the bloc’s most prestigious posts. He is the first Eurogroup head from southern Europe and the first from a country bailed out during the financial crisis. The election of the Portuguese economist, who has a doctorate from Harvard, was an acknowledgement of Portugal’s astonishing economic recovery.
Unemployment has more than halved to below 7%, from a 2013 peak of more than 17%. The Organisation for Economic Co-operation and Development (OECD) predicts Portugal’s gross domestic product (GDP) growth will remain “broadly stable” at about 2% in 2019 and 2020, supported by growth in consumption and exports. “The fiscal deficit is expected to disappear by 2020 and the debt-to-GDP ratio is on a firmly declining path,” adds the OECD.
Since 2015, his Socialist Party has governed in coalition with junior partners the radical Left Bloc and Portuguese Communists on an anti-austerity platform.
Mr Centeno’s first priority was to restructure and recapitalise four of the five largest banks in Portugal during 2016 and 2017. Capital flowed in from investors in China, the US and Spain but the government also injected Ä3.9bn into state-owned Caixa Geral de Depósitos, the country’s largest bank by assets. The minimum wage and pensions were raised while taxes on corporations and those on a low income were lowered. To ease the strain on public finances, infrastructure spending was slashed, but has started to recover since 2017.
Mr Centeno has won praise for his chairing of the 19-member Eurogroup, and for being more conciliatory than his sometimes abrasive predecessor, Jeroen Dijsselbloem.
“I firmly believe in institutions and making them better,” says Mr Centeno says. “Compromises are of the essence in making progress.”
Finance minister of the Year,
Americas
Felipe Larrain, Chile
In a rollercoaster year for politics and financial markets in Latin America, Chile remained a beacon of stability. While raising its economic prospects for 2018, it also pushed ahead with an important reform agenda.
This included a new banking law that will strengthen capital requirements and improve oversight, bringing the sector closer in line with international standards. It also included new rules that simplify the tax payment process and the creation of an independent fiscal council – measures that will improve the efficiency and soundness of the fiscal system. The ultimate aim is to reduce the country’s fiscal deficit and control the growth of public debt.
Chile has also remained a positive force for regional integration and an example of how openness and international trade can benefit national economies. Beside its role within the Pacific Alliance with Peru, Colombia and Mexico to foster trade and financial markets integration – which benefits from Chile’s broad and well-established financial sector – Chile has grown its international ties. Its free-trade agreements now include 64 countries that represent more than 85% of global gross domestic product and 95% of Chilean exports.
Finance minister Felipe Larrain played an important role in keeping the country firmly on its economic path, which has garnered him The Banker’s recognition as Finance Minister of the Year, Americas.
“In a world that risks a retreat to inward-looking policies, we are deeply committed to trade liberalisation within the Latin American region and beyond,” says Mr Larrain. “Chile is a small, open and financially integrated economy that has significantly benefited over time from greater engagement with the global economy. We are also working actively to convert Chile into a regional financial centre and a dynamic exporter of financial services.”
Mr Larrain is well aware of the difficulties ahead stemming from the patchy global economic outlook. “These are challenging times for the global economy, especially for emerging countries, as some downside risks to global growth cloud the horizon. Our resolve and determination as policy-makers will surely be tested,” he says. Nonetheless, his resolve is unchanged: “Our goal is to convert Chile into a developed nation, escaping the middle-income trap, for the benefit of all Chileans.”
Finance minister of the Year,
Middle East
Moshe Kahlon, Israel
Israel’s economy has been ticking along at a respectable pace in recent years. In 2017 it expanded by 3.4%, driven by healthy domestic demand and solid global growth, according to the International Monetary Fund. Encouragingly, the outlook for 2018 and 2019 is even more positive, and the World Bank is anticipating growth of 3.6% and 3.5%, respectively.
This is occurring as the government’s finances are in excellent shape; the budget deficit remains within the government target, coming in at 2.9% in 2017, and is expected to remain at the same level for full-year 2018. Public debt, meanwhile, fell to 61% of gross domestic product in 2017, from levels as high as 90% in 2002.
Challenges exist, however, with levels of poverty and inequality in the economy exceeding the norms of other developed markets. But Israel’s economy was rightly praised by the Organisation of Economic Co-operation and Development in 2018, for being “strong” and for registering a “remarkable” macroeconomic and fiscal performance in recent times. This achievement is the result of many years of hard work by the Israeli authorities. But more recently the economy’s success has come under the auspices of finance minister Moshe Kahlon, who has held the post since 2015.
Under his guidance, Israel’s Ministry of Finance has balanced fiscal discipline with the need to address some of the country’s most pressing development problems. This includes allocating expanding technical training in schools and the further growth of the earned income tax credit programme, which is a tool to promote participation in the labour market. Both received a boost in the country’s 2019 budget. In addition, the country’s 2018 budget saw an expansion of funds for after-school childcare, as well as for disability benefits.
Cumulatively, these measures are tackling persistent and widening social inequalities in Israeli society while stimulating access to the labour market for under-represented groups. Reforms of this nature should, over the longer term, strengthen the economy at the expense of mild fiscal expansion in the short term. For these actions and other reasons, Moshe Kahlon comfortably emerged as the winner of the Middle East Finance Minister of the Year for 2019.
Finance minister of the Year,
Africa
Mohamed Maait, Egypt
Egypt’s ambitious programme of economic reform continues to win plaudits from around the world, with good reason. In the space of a few short years, the country has enacted some of the most wide-reaching structural reforms in its recent history. Admittedly, this has led to a high degree of short-term pain for Egyptian consumers – high inflation has emerged, for instance, as a result of the free float of the pound – but these reforms are undoubtedly paving the way for a brighter future for the country. And at the forefront of this reform story is Egypt’s finance ministry.
The current minister, Mohamed Maait, took office in June 2018, replacing Amr El Garhy. Though his tenure has been short, Mr Maait has continued the work of his predecessors to ensure that Egypt’s reform programme remains on track. As such, the 2019 African Finance Minister of the Year award reflects both Mr Maait’s personal contributions to this story, in tandem with the ministry’s wider push to reform the economy.
Indeed, the ministry’s efforts to improve public finances saw Egypt post its first primary budget surplus (which excludes interest payments on government debt) in 15 years in July 2018. This came as tough fuel and electricity subsidy cuts, among other measures, helped to shore up Egypt’s fiscal situation, and rating agency Moody’s expects Egypt to return to sustain primary fiscal surpluses moving forward.
Underpinning this performance is a reduction in the energy subsidy bill, which is expected to fall below 1% of gross domestic product (GDP) in 2020, from about 4.1% of GDP in the 2017 fiscal year. Meanwhile, price hikes on fuel have seen the government achieve cost recoveries in this space of between 70% and 80%, up from just 30% in 2013.
These measures, and others, are expected to alleviate the government’s high levels of public debt. According to Moody’s, high GDP growth (which reached 5.2% in the fiscal year 2017/18), in tandem with the government’s reforms, should see public debt burden fall to 82% of GDP by 2020, down from 103.5% in the 2017 fiscal year.
Encouragingly, the country’s favourable outlook shows no signs of dimming. Moody’s expects the impact of these reform measures to nudge GDP growth to about 6% in the coming years.
