DENPASAR - Indonesian President Susilo Bambang Yudhoyono's political gamble to
widen his coalition and govern by broad consensus is backfiring just months
after his re-election, posing serious questions about the future efficiency and
cohesion of his already scandal-tainted government, including simmering
controversy over his previous administration's rescue last year of a mid-sized
bank.
Soon after his landslide victory in July, Yudhoyono worked hard to broaden his
coalition in parliament. He took risks to assemble a government that rewarded
with cabinet posts and other plum position the political parties that had
supported him during the campaign as well as those that came around after the
poll result.
The politicking notably led to political powerhouse Golkar joining
the government soon after Aburizal Bakrie, a controversial former senior
minister and businessman, took the reins of the party in October. In the
lead-up to the July election, Golkar had campaigned against Yudhoyono in its
pursuit of the presidency, but it was nonetheless rewarded with four ministries
in the new government.
Yudhoyono's calculation also led to former state secretary Hatta Rajasa, a
senior politician with the moderate Islamic party PAN who had served as
transport minister in the previous government, receiving the coveted post of
coordinating minister for the economy, despite accusations Rajasa's past
performance had been lackluster. Several other trades-offs contributed to a
government line-up that is a clear mix of reformers and conservatives,
technocrats and political appointees, and secularists and Islamists.
The mix was devised as a boost for the president's agenda in parliament, which
includes economic and financial reforms aimed at easing the way for more
foreign participation in the economy. He was also expected to push for badly
needed reforms of the bureaucracy, security apparatus and state-owned
enterprises.
However, this was when Yudhoyono was negotiating from a position of strength
after his resounding election win. His hand has since been weakened with
scandals related to official attempts to undermine the Anti-Corruption
Commission (KPK) and questions over the integrity of a state bailout last year
for a financially troubled mid-sized bank.
Golkar and to a lesser extent PAN have surprised some analysts by joining the
opposition in attacking the government over indications of mismanagement and
potential fraud in the previous government's handling of the 6.7 trillion
rupiah (US$716 million) rescue of Bank Century, a perennially troubled
financial institution that teetered towards insolvency last year.
As early as 2005, Bank Indonesia, the country's central bank, required Bank
Century's managers to put funds in a special escrow account as a guarantee
against the non-performing assets on its balance sheet. By the time the
authorities realized last year that the bank was having difficulty obtaining
inter-bank loans, Bank Century had lost a significant proportion of its
deposits.
As the global financial crisis started to hit, Bank Century's capital adequacy
ratio plummeted from 18% in September 2008 to minus 2.3% by November 2008,
raising government fears of potential systemic risk to the financial sector. A
government short-term fund injection of 689 billion rupiah did little to
stabilize the capital-depleted bank.
A few days later, the Coordination Committee, a board comprised of Bank of
Indonesia and the Ministry of Finance executives, declared Bank Century "a
failed bank with systemic impacts". Officials believed at the time that its
closure could have affected confidence in all Indonesian banks, presenting the
risk of a calamitous chain reaction. A further injection of 632 billion rupiah
was authorized and later increased to 6.7 trillion rupiah.
The additional capital injections were not publicly revealed until August 2009,
when the parliament's Finance Commission demanded an audit of the bailout. The
Supreme Audit Agency later reported "unhealthy practices" in the funds
disbursements, but it failed to say who were among the final beneficiaries of
the capital infusions.
Suspicions started circulating that the money went to well-connected
depositors, and from there trickled down to the coffers of political parties,
including Yudhoyono's Democrat Party. The president has strongly denied it and
called for total transparency in the ongoing investigations. But the risk is
rising that the inquiry becomes politicized as Yudhoyono's allies and enemies
sense political weakness.
The parliament unanimously agreed in early December to establish a special
committee comprised of 30 coalition and opposition politicians to launch a
formal enquiry, led by the Golkar Party, into the alleged tainted cash flows.
It will be tasked with investigating the case for two months and has already
turned its attention towards who had the authority in assessing Bank Century as
a "failed bank with systemic impacts".
The probe into the case started on Wednesday, with the summoning of the
leadership of the Supreme Audit Agency, and has already taken hard aim at
Finance Minister Sri Mulyani Indrawati and Vice President Boediono, the central
bank governor when the bailout was authorized. Both are widely perceived as
reformers pushing for greater liberalization of the economy.
Indrawati has clashed directly with the Golkar Party's Bakrie, whose
wide-ranging business interests have flourished under a system of patronage and
grew robustly while he was a minister in Yudhoyono's previous government before
suffering losses wrought by the global financial crisis. She has accused the
Golkar Party of turning the probe into a witch-hunt against her. Golkar member
Idrus Marham, who chairs the House special committee investigating the bailout,
has asked her not to confuse personal matters with the investigation.
The now open conflict between the top two ruling coalition members raises
concerns about the government's future stability. There has been speculation
that Yudhoyono insisted Mulyani visit Bakrie to clear the air, but it's unclear
if such a meeting took place. It's clear to most analysts that the two
political heavyweights share different perceptions about the government's role
in economic affairs, underlining the tension between reformers and
conservatives in Yudhoyono's coalition.
Whether that tension undermines future policy-making is an open question. The
tussle over Bank Century is likely the first in a series of conflicts that will
pit competing special interests and political loyalties inside the coalition.
Yudhoyono thus has some tough choices to make to maintain stability and control
of parliament. The Bank Century case has already distracted the government from
policymaking, undermining his fast track promises made on the campaign trail.
That distraction was also seen as one reason for heavy foreign selling on the
Jakarta Stock Exchange on Tuesday and the overall decline in average trading
volumes over the past two weeks. To be sure, many investors have taken a wait
and see position, but earlier hopes that Yudhoyono's could push quickly reforms
are fast fading.
Fabio Scarpello is the Southeast Asia correspondent for Adnkronos
International. He may be contacted at fscarpello@gmail.com
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