By Sara Webb and John Chalmers
JAKARTA, July 7 (Reuters) - Indonesia has put "muddling through" behind it and will move to faster growth if Susilo Bambang Yudhoyono is handed another five years to pursue reform, his trade minister said on the eve of a presidential election.
Yudhoyono, who is widely expected to win a second term in Wednesday's poll, has made modest progress in tackling graft and making Indonesia more attractive to foreign investors in a bid to lift growth and create jobs in Southeast Asia's biggest economy.
"We hope to be able to see the continuation of the reforms that we have already started," Trade Minister Mari Pangestu told Reuters in an interview on Tuesday.
"I think we've moved on from muddling through to floating. Floating means we've had this gradual growth in the last five years," she said, adding "we would hope we can have a sharp increase".
Much of the impetus for reform under Yudhoyono has come from Finance Minister Sri Mulyani Indrawati, a respected technocrat who made sweeping changes in her own ministry and who is now introducing similar reforms to other key ministries including trade in order to improve the bureaucracy, Pangestu said.
"The finance minister has spearheaded many of the bureaucratic reforms, that has to continue," said Pangestu, who, like Indrawati, is a technocrat and an economist by training.
While Indrawati has been nominated for the post of governor of the central bank, Pangestu, who studied at the Australian National University and University of California, Davis, declined to say whether she would remain as trade minister if Yudhoyono won a second term, adding that it would be up to the president.
Yudhoyono, a former general who opinion polls show is far ahead of his rivals, former President Megawati Sukarnoputri and Vice President Jusuf Kalla, is likely to appoint more technocrats in his next cabinet, rather than handing out plum positions to political allies.
PERFORMANCE-RELATED PAY
Indonesia's bloated bureaucracy is ripe for reform: it has a reputation for inefficiency, poor service and graft, and it is almost impossible to fire underperformers.
But with effect from 2011, promotions and pay in the trade ministry and other key departments will be based on performance rather than sheer length of duty, after this change proved a success in the finance ministry, said Pangestu.
New legislation is also intended to reduce the potential for conflicts of interest by preventing civil servants from having other duties such as serving on the boards of commissioners of state-owned companies.
The bureaucracy is one of several areas in addition to infrastructure, transport and energy, where reform is critical for improving Indonesia's investment climate and creating jobs in a country with millions of jobless and under-employed.
On the economic front, Pangestu said investors would have more clarity on the rules regarding foreign ownership of listed companies once revisions to legislation concerning investment have been passed by parliament, most likely by September.
Last year, Qatar Telecom's acquisition of Indosat, Indonesia's No.2 mobile phone operator, ran into trouble because of confusion over the foreign ownership rules.
Indonesia will follow China's example, setting up special economic zones, or SEZs, to attract more foreign investment, Pangestu said, adding she had received 15 applications for SEZ status but that only three or four met the criteria for approval.
These SEZs could then serve as catalysts for the surrounding areas, she said.
"When you want to reform the whole country, the whole system, it is not possible to do it rapidly, so what you do is you pick geographical areas where you can implement what you consider to be the best practices" in terms of infrastructure, access to international trade, labour supply, and a critical mass of industry, Pangestu said.
While investors would be eligible for tax benefits, those were not the main incentive in such SEZs, Pangestu said.
"What investors are more interested in are certainty and predictability for doing business so we focus very much on the infrastructure availability and quality, as well as the policy and the regulations being implemented in a very clear, predictable way." (Editing by Sugita Katyal)