Indonesian Bailout Investigations ‘May Hurt Economy’

Masked protesters rattling their cage in front of

the vice president’s palace in Jakarta. They demanded an investigation into
Vice President Boediono and Finance Minister Sri Mulyani
related to their role in the Rp 6.7 trillion ($710 million)
bailout of PT Bank Century

As the Corruption Eradication Commission formally announced its own probe into the controversial Rp 6.7 trillion ($710 million) state bailout of PT Bank Century on Wednesday, economists warned the fallout from the investigation could have serious consequences for the economy. Tumpak Hatorangan Panggabean, chairman of the commission, known as the KPK, said its decision to investigate was made after it examined the report by the Supreme Audit Agency (BPK), which it obtained last week. Tumpak said the commission would consult with the BPK and the anti-money laundering agency, the Financial Transaction Reports and Analysis Center (PPATK), “to get better information.” Data will also be sought from the Finance Ministry, Bank Indonesia and the Deposit Insurance Agency (LPS), he said, adding that he had signed a request for the PPATK to trace where the bailout money was channeled. The PPATK has found irregularities in more than 59 transactions from 44 personal and seven institutional accounts in Bank Century to 10 other banks, totaling more than Rp 146.7 billion. It has so far failed to track where the money went. “We will soon summon everyone that we feel is necessary,” Tumpak said. Vice President Boediono, central bank governor at the time of the rescue, has been blamed for the bailout along with Finance Minister Sri Mulyani Indrawati, but both immediately welcomed the KPK’s move, which comes a day after the House of Representatives approved plans to launch a probe by lawmakers. “We don’t have to wait for the House investigation for the law enforcers to carry out a thorough investigation,” Boediono said. “To avoid prejudice and to calm the people, the investigation should be completed soon.” Politicians and activists have called for Boediono to step down. Some say he pushed for the bailout despite opposition from financial regulators and the Finance Ministry. A pale-looking Sri Mulyani, speaking with a rasp at an investor summit in Jakarta on Wednesday, said she was ready to face the House’s questions. “All we did at that time was to save our economy. I hope we all can see the policy and its result more objectively. Because we all work to establish a more reliable state order,” she said. Technocrats Boediono and Sri Mulyani are two of the most respected members of President Susilo Bambang Yudhoyono’s new cabinet, which is stacked with political appointees. Citigroup economist Johanna Chua, meanwhile, said events surrounding the bailout inquiry were “raising political risk in Indonesia,” adding that the involvement of Boediono and Sri Mulyani “in the ongoing investigation is the main source of political risk.” “It potentially could have adverse consequences,” Chua said. “It is unclear how far the inquiry will go and what type of political consequences may hit President Yudhoyono’s administration, particularly as the markets favor Boediono and Sri Mulyani.” Danareksa Research Institute economist Purbaya Yudhi Sadewa said it would be costly for the country if the two were removed. “There would be a great shock in the market and the rupiah may be affected, although it depends on who would be replacing the two.” KPK spokesman Johan Budi said it would work separately from the House special committee, as they “work in different areas. One is political while another is legal,” he said. The KPK is seen as the country’s best-performing law-enforcement agency, but it has been undermined by recent attempts to prosecute its leaders. Rumors have circulated that some Century money made its way into President Yudhoyono’s re-election campaign. Yudhoyono and his allies have vehemently denied the claims and have filed a defamation complaint against a fringe nationalist group over them.