Bank bailout scandal rocks Indonesia
By 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
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.
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
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