The political debate over the Bank Century bailout may harm Indonesia’s economy as the country loses momentum to bolster growth, while other nations gear up to attract investors, economists say.
“We need to be cautious in the first quarter of 2010 if political conditions continue to heat up.
Investors may see that growth in other countries is higher, while this country is still busy focusing on politics when the elections finished six months ago,” Bank Mandiri economist Mirza Adityaswara said on Monday.
He was speaking on the sidelines of an economic outlook seminar held by the Indonesian Economic Graduates Institution (ISEI).
Mirza said Indonesia had lost its momentum to attract investment in the fourth quarter of this year.
Investors were taking a wait-and-see approach in the first nine months of this year due to the general and presidential elections, but they should have started investing in the last quarter of 2009, he said.
The political tension has made investors reluctant to spend money, he said. “It may trigger capital outflow if political conditions continue to intensify.
“There are always bad banks amid a crisis. The question is whether the government should have saved the bank,” he said, citing the fact that Indonesia’s financial market between the fourth quarter of 2008 and the first quarter of 2009 was under pressure, indicated by the falling rupiah against the US dollar and high bond yields demanded by investors.
The government decided to save Century, renamed Bank Mutiara, in November last year to protect the financial sector from a systemic threat, Finance Minister Sri Mulyani Indrawati said.
The Deposit Insurance Corporation (LPS) spent Rp 6.76 trillion (US$716 million) in bailout funds to save the bank.
Now the House of Representatives has formed an inquiry committee to investigate the Century bailout, suspecting ulterior motives behind the move to save the bank.
Mulyani was the chairman of the Financial System Stability Committee (KSSK) and Vice President Boediono was the central bank governor when the decision to rescue the bank was made.
The final decision was made by Mulyani in her capacity as the KSSK chairman.
Boediono will be summoned by the House’s inquiry committee on Tuesday. Mulyani is set to be summoned by the committee on Jan. 4 .
Economist Sri Adiningsih from Gadjah Mada University, said negative perceptions resulting from the political tension could cause capital outflow.
“The market is already too bullish. The potential for capital outflow exists. Don’t let the economy be ruined because of Indonesia’s non-economic problems,” she said.
Mirza said investors had reaped 75 percent gains in stocks and 15 percent in currencies this year. Investors may leave if they doubt economic prospects, he said.
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