Indonesian parliament debates bank bailout findings
By John Braddock
9 March 2010
Angry politicians scuffled in the Indonesian parliament last Wednesday as a special committee delivered its findings from a probe into the government’s bailout of PT Bank Century. The three-month inquiry has opened up a rift in the ruling coalition of President Susilo Bambang Yudhoyono, who won a second term of office in last July’s election.
As the report was being voted on, around 1,000 people rallied outside the parliament. Anti-government protesters hurled rocks at police who responded with tear gas and water cannons. Demonstrators hung a large banner across the front gates of the parliament compound reading: “Replace the regime, replace the system without SBY”—referring to Yudhoyono. Police cordoned off the area with rolls of razor wire.
Inside parliament, three of Yudhoyono’s partners—Golkar, the United Development Party (PPP) and the Prosperous Justice Party (PKS)—joined opposition parties in a 325-212 vote that indirectly implicated Vice President Boediono and Finance Minister Sri Mulyani Indrawati in abusing their authority during the bank rescue. Boediono was the central bank governor at the time. Together Golkar and the Prosperous Justice Party account for almost 30 percent of the 560 parliamentary seats.
The Yudhoyono government initially injected 1.3 trillion rupiah ($US107 million) to boost Bank Century’s liquidity after the country’s Deposit Insurance Corporation seized it in November 2008. The official justification for the bailout was to prevent a meltdown of Indonesia’s banking system. Public outrage began to grow, however, after the escalating costs of the rescue were exposed in mid-2009. In the end, the mid-level bank received 6.76 trillion rupiah ($676 million), almost four times the original amount agreed. Its principal owner, Robert Tantular, was eventually convicted of embezzling funds and sentenced to five years in prison.
Parliament established a committee late last year to examine why Bank Century continued to operate after its frequent breaches of banking rules and whether rescue funds found their way into the coffers of political parties. The aim of the government’s representatives on the committee was to placate popular anger and reassure international financial institutions that corruption would not be tolerated in Indonesia. Every party represented sought to make as much political mileage out of the inquiry as possible.
The committee presented two alternative sets of recommendations to be voted on by parliament. The first, supported by Yudhoyono’s Democratic Party, found the bailout was legal and justified but recommended the investigation of some officials at Bank Century and also the central bank over unspecified crimes. The second option, which was adopted by parliament, declared that there had been an abuse of power in the bailout and recommended criminal investigations.
The Indonesian Democratic Party of Struggle (PDI-P), the Great Indonesia Movement Party (Gerindra) and the People’s Conscience Party (Hanura) together with Golkar, the PPP and the PKS voted for the second option. Yudhoyono’s Democratic Party and its other allies, the National Awakening Party (PKB) and the National Mandate Party (PAN), supported the first.
The report and recommendations tabled in parliament were significantly watered down from the findings presented to the committee by the various party factions. Following intense lobbying by the presidential palace, Boediono and Sri Mulyani were not mentioned by name in the final recommendations and are only listed in an addendum. Moreover, despite persistent rumours that Yudhoyono could face impeachment, no allegations against him appear in the findings.
Following the vote, Yudhoyono defended his vice president and finance minister, citing their “unblemished” record. Vice President Boediono promptly dismissed any suggestion that he would step down. Despite earlier predictions, none of the parliamentary parties has initiated a formal impeachment motion against the vice president. Golkar and the United Development Party (PPP) have declared they have no plans to do so.
Despite efforts to patch up the ruling coalition, the decision by Golkar, the PPP and the PKS to vote with the opposition could lead to the break up of Yudhoyono’s cabinet. Democratic Party legislator Achsanul Qosasih told the Jakarta Post: “A coalition is supposed to walk together. If they want to leave they should go. We respect the opposition bloc; they have been consistent and clear from the start. What really hurts is coalition partners who act like thorns into flesh.”
Investors are watching the fallout from the parliamentary inquiry closely. The bitter divisions among parliamentarians reflect ongoing conflict over the direction of economic policy. Sri Mulyani and Boediono are regarded as Yudhoyono’s two key pro-market reformers. Opponents of market restructuring, who represent less competitive sections of business, had hoped the inquiry would provide the means to oust the two.
The markets reacted positively to Yudhoyono’s speech backing his ministers. The benchmark Jakarta Composite Index rose 0.5 percent to 2,578.77, and the price for the country’s credit-default swaps fell by 4.4 percent. Standard Chartered Bank economist Fauzi Ichsan interpreted the market movements as due in part to the president’s speech. “The firm statement should also signal to the real sector to start expanding their businesses and end their wait-and-see approach,” he said.
Indonesia was less exposed to the global financial crisis that erupted in 2008 because its major banks are not as closely intertwined with foreign institutions as other countries. However, Yudhoyono has been under pressure to tackle Indonesia’s reputation for endemic corruption and press ahead with economic reforms to promote faster growth and attract investment that is currently going to China.
However, the Financial Times warned on March 2 that the gains made by Indonesian stocks, bonds and the currency of the past year could be under threat if either Sri Mulyani or Boediono were forced to step down. “Investors would start to pull out,” Eurasia Group analyst David Kiu commented. “It would be a negative surprise.” Citigroup Securities Indonesia President Director Sunny Yoon said: “We do need to see some closure, but if the closure is Mulyani losing her post, no matter how you paint it, the market is going to take it very negatively.”
The inquiry committee’s findings will be discussed further in a plenary session of parliament next week, which will make recommendations for further action. While the legislature has no legal power to prosecute state officials, the ongoing debate will only exacerbate tensions in the government.
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