Indonesia's President Susilo Bambang Yudhoyono picked his brother-in-law as the new Army chief, his spokesman said on Wednesday, as speculation grows over who Yudhoyono might pick to as a presidential candidate in 2014 elections.

Under Yudhoyono, Indonesia has started to improve infrastructure and trim layers of bureaucracy, problems cited by investors as deterrents to investment.

Markets and investors would like to see the continuation of such policies and a peaceful transfer of power after the next election in a country with the world's biggest Muslim population.

Yudhoyono picked Lt. Gen. Pramono Edhie Wibowo, commander of Army Strategic Reserves, as Army chief, the presidential spokesman, Julian Pasha, told reporters. "Yes, [the decision] is based on a recommendation from a high panel in the military," he said.

Under Indonesian law, Yudhoyono, a retired Army general who was elected twice partly due to his reformist agenda, cannot run again in the 2014 elections. That has raised a big question mark over who he might groom to run.

Analysts said the appointment of Wibowo, the brother of the Yudhoyono's wife, as Army chief, would raise speculation that he could be involved in a presidential bid. Yudhoyono announced this month that his wife and sons, one the secretary general of his ruling Democrat Party, would not run for the presidency.

"Even though Wibowo is probably the strongest contender in the race for the Army chief seat, we can't ignore the relation between his appointment and Yudhoyono's position as president," political analyst Syamsudin Harris said.

"Analysts will see whether he has potential for 2014," he said, adding that historically many Indonesians see someone from military as having the leadership qualities necessary to lead the country. "So I suspect Wibowo has a chance of being paired up with a future president or vice president candidate," he said.

Wibowo has been a rising star in the military in recent years and was commander of the Army's elite Kopassus unit. In November he became commander of Army Strategic Reserves.

The Army chief is seen as a stepping stone to becoming the head of the Chiefs of Staff, a post that is due to become vacant in 2013, and which Wibowo is likely to be a top contender for.