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In 1998, when Boediono was Indonesia's planning minister, he refused to let President B.J. Habibie spend $300 million to develop a commercial aircraft industry. As Bank Indonesia governor starting today, he'll have to resist political pressure against raising interest rates.

The first task facing Boediono, who goes by one name, will be to fight inflation. Consumer prices will surge at an 11.2 percent pace by year-end from 9 percent in April, the government forecast yesterday, after announcing it will allow average fuel prices to increase 28.7 percent.

With an election set for next year, President Susilo Bambang Yudhoyono plans to cushion the effect of higher energy costs by making payments to Indonesia's poorest families. To keep that spending and the fuel costs from translating into higher prices, Boediono, 65, may raise interest rates to 8.5 percent in the third quarter, the highest in a year, from 8.25 percent, according to a Bloomberg News survey of 13 economists.

“Any governor of Bank Indonesia needs to be sensitive to political pressure, both from the president and increasingly the parliament,'' said Chris Manning, a professor at Australian National University in Canberra, who met Boediono there in 1972 when the Indonesian was completing his master's degree in economics and working as a research assistant.

“Boediono will do a good job because he is clearly experienced in that area,'' he said.

A Penn Doctorate

After completing his masters degree in Australia, Boediono went on to the University of Pennsylvania, where he earned his doctorate in economics in 1979 with a thesis titled “Econometric Models of the Indonesian Economy for Short Run Policy Analysis.''

“He got an education in policy making and economics that was Western-style,'' said F. Gerard Adams, his thesis adviser.

It was when Boedino was head of Indonesia's planning commission in 1998 that Habibie requested support to get Industri Pesawat Terbang Nusantara's assembly and manufacturing processes certified by international aviation regulators so its planes could be sold commercially, according to Ginandjar Kartasasmita, then the top economics minister.

“The technocrats didn't see eye-to-eye with Habibie for a long time because Habibie was seen as a big spender,'' Ginandjar said.

Boediono, who declined to be interviewed, will need that same kind of toughness in his new role. Even before the new governor took office, Dradjad Wibowo, a member of the parliamentary panel on finance and banking, said yesterday that the central bank, which has been independent since 1999, should “resist raising interest rates and instead monitor the effect of the proposed fuel-price increase.''

`A Difficult Position'

He added that “raising rates may put banks and businesses in a difficult position.''

Ramson Siagian, a lawmaker from Indonesia's largest opposition party, said yesterday: “We want Bank Indonesia to carefully take into account the declining purchasing power of low-income earners in Indonesia free credit report .com. If Boediono can't do that, we won't be able to trust him as a smart central banker.''

The sources of Indonesia's current bout of inflation are imported food and fuel, whose price increases are magnified by the poor state of roads and ports across the 18,000 islands that make up the world's biggest archipelago.

Indonesian inflation, at 9 percent, is the fourth-highest in Asia, trailing Sri Lanka, Pakistan and Vietnam.

A Track Record

Boediono, who most recently was coordinating economy minister, has a track record in handling rising prices. As finance minister from 2001 to 2004, he imposed an austerity program that helped the country slow inflation from 13 percent in July 2001 to a four-year low of 4.6 percent in February 2004.

In 2003 the government enacted a law he sponsored to restrict the budget deficit to 3 percent of gross domestic product. In 1998, the deficit was 8.5 percent.

“It was a difficult period, but he managed it well,'' said Emil Salim, 77, an adviser to Yudhoyono, 58, and a member of President Suharto's economic team in the 1960s. “In the allocation of resources, you must be very careful the public sector doesn't get out of hand and become a source of inflation.''

With crude oil up 34 percent this year, the government would have to spend more than 21 percent of its estimated total revenue just to keep the price of fuel for individual consumers the same as last year, according to Finance Minister Sri Mulyani Indrawati.

Fuel Costs

Suharto's last attempt to raise fuel prices led to the end of his 32-year rule in 1998. Megawati Soekarnoputri's government was forced to roll back an increase in 2003. Details of the latest attempt will be announced after May 23, Sri Mulyani said yesterday.

“Once the fuel-price increases come through, inflation will rise, so you would expect they can't go too easy on monetary policy,'' said Hal Hill, an economics professor at Australian National University who met Boediono there.

The World Bank last month cut its 2008 growth forecast for the $364 billion economy to 6 percent from 6.4 percent in November, citing the effects of accelerating inflation and slowing exports. GDP expanded 6.3 percent in 2007.

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