Patrick Guntensperger, Jakarta – When the global financial crisis was at its height last November, Indonesia's Century Bank faced a severe liquidity crisis. Spooked depositors ran on the mid-sized consumer-oriented bank, depleting its capital base and raising fears financial contagion would have a domino effect on other wobbly financial institutions.
President Susilo Bambang Yudhoyono and his team of technocrats responded by providing Century Bank a financial lifeline soon after its management declared the bank was insolvent on November 21, 2008. The initial 700 billion rupiah (US$70.9 million) cash infusion was designed to allay depositor fears and provide sufficient liquidity for normal operations.
But subsequent government funds funneled through the bank drove the total bailout bill to over 6.76 trillion (US$677.4 million), four times the amount approved by parliament. That's raised questions among analysts and opposition politicians why a middle-sized bank required so much capital to be stabilized.
The political opposition, including candidates outpaced by Yudhoyono at presidential polls in July, have seized on the issue to raise questions about the incumbent leader's claims to economic competence and integrity. Indonesia maintained positive economic growth rates throughout the economic downturn, while more export-oriented neighbors slipped into negative territory, and it is expected to grow by 4.3% this year.
Nonetheless, there were concerns last year that the country might need assistance from the International Monetary Fund (IMF) to stabilize its complex and loosely regulated banking system. Century Bank represents the amalgamation of three smaller banks whose balance sheets were combined and re-opened under a new banner in 2005. It has since been rocked by an embezzlement scandal, where a top executive allegedly skimmed hundreds of millions of dollars worth of bank assets into a personal account.
As the global economy stabilizes, Yudhoyono's economic team has apparently weathered the storm and avoided the need for what would have been a politically unpopular re-engagement with the IMF. People still recall the austerity measures imposed during the 1997-98 financial crisis after the government borrowed (US$42 billion) from the IMF, which is it still paying off.
Opposition attacks have surprisingly focused on Finance Minister Sri Mulyani Indrawati, who has won widespread international acclaim for uprooting corruption and improving efficiency at the ministry, including over the notoriously graft-ridden Customs and Tax departments. Forbes magazine recently ranked her as the 23rd most powerful woman in the world.
Also under opposition fire is Bank of Indonesia governor Boediono, another respected technocrat who ran and resoundingly won as Yudhoyono's running mate at the presidential elections in July. He, too, has been credited with bringing high-level graft and embezzlement scandals at the central bank under control. That anti-corruption record and his technocratic credentials were a key attraction to the Yudhoyono-Boediono ticket.
Political charges
Outgoing vice president and last-placed presidential candidate, Jusuf Kalla, has accused Boediono of "dereliction of duty" for his role in securing Century Bank's bailout. The accusations claim there was a behind-the-scenes collusion agreement for the government to pump enough cash into the institution so that politically connected depositors could recover their funds before the wider depositor base. Among the bank's major depositors are the wealthy Sampoerna and Arifin Panigoro families, as well as Indonesian state-owned insurance firm PT Jamsostek and national tin miner PT Timah.
According to Kalla, still the incumbent vice president, these key depositors acted on insider information to make massive withdrawals at the same time the government was pumping more capital into the bank than had been agreed to by parliament. All have denied any wrongdoing related to the bailout. Parliament has requested the Supreme Audit Agency and the anti-graft agency (KPK) to conduct an investigative audit of the bank and the bailout.
Further complicating the case is the fact that Century Bank major shareholder Robert Tantular was under investigation for massive fraud through embezzlement at the same time the government released its first tranche of rescue capital. Tantular was arrested on November 26, 2008, and now faces eight years imprisonment if convicted on the embezzlement charges, which some unconfirmed reports have estimated at nearly US$1 billion. The prosecution has not yet presented its case against the shareholder, who has denied the charges.
The opposition's accusations have raised new questions in the public eye about Yudhoyono's economic management and anti-corruption credentials, which he leveraged to positive effect to win votes at the July polls. Indrawati said in a Tuesday meeting with journalists attended by Asia Times Online that there was no way that Tantular's fraud could have been apparent to Boediono and the central bank at the time of the bailout.
Indrawati, who is also acting chief economics minister, said the bailout was necessary to prevent the bank from failing and to maintain financial sector stability. When asked if the bailout was politically motivated, she replied, "Absolutely not. It was part of the government's strategy to cope with the financial crisis." She added that the only part politics played in the bailout was the positive side effect of allowing for a greater government role in supervision and control over financial institutions' management.
That, she said, will include future government surveillance over senior executives' remuneration, which, through alleged transfers of bank capital to a major shareholder's personal accounts, contributed to Century Bank's collapse. Indrawati said she views the political furor over the new revelations about the scale of the bailout as the inevitable criticism of ministers who manage economic and finance portfolios and take crucial decisions to maintain systemic stability during times of crisis.
It's yet to be seen how Yudhoyono, Boediono and Indrawati will emerge from the politically charged allegations that they mismanaged the Bank Century's bailout. Some analysts claim the bailout worked, the fraud was investigated and is being prosecuted and Yudhoyono's economic team will still be viewed favorably by international investors keen on the reform prospects of a second Yudhoyono term.
As Yudhoyono mulls his next cabinet, which should be in place by the end of October, some wonder if the Bank Century controversy will have any bearing on Indrawati's next posting. When asked if she would prefer to continue as finance minister, she replied, "What possible motivation could I have to want to do that job for five more years?"
Queried which portfolio she would prefer, Indrawati replied without hesitation the education portfolio and deflected a query if she would accept an invitation to serve as next justice minister. With another financial crisis apparently averted, the Bank Century controversy shows there is still much to be learned about the rule of law among Indonesian bankers and regulators.
[Patrick Guntensperger is a Jakarta-based journalist and teacher of journalism. His blog can be found at http://pagun-view.blogspot.com.]