The bailout not only violated the central bank’s prudential regulation, but also had no legal basis, especially after the Financial System Safety Net regulation in lieu of law (Perpu) was rejected by parliament.

The audit by the Supreme Audit Agency (BPK) explains the violation of the Indonesia Deposit Insurance Corporation (LPS) that was responsible for allocating the money to bailed-out bank and allowing the deposit withdrawals while the bank was under special takeover management. In addition, there is speculation that the money from the bailed-out bank was channeled into the inner circle of top political leaders.

The direct implication is that those responsible for economic policy in this crucial time, mainly Boediono and Sri Mulyani, cannot concentrate on their jobs, because it is such a high-profile case. They are not only subject to inquiries from the audit body, but also soon from law enforcement institutions and the parliament.

There is no question of Boediono’s and Sri Mulyani’s integrity as they both have high credibility in their job and are highly trusted. But under intense political pressure, as experienced by their predecessors, innocent people could be the victims of high-level political and legal battles.

The crucial issue is whether President Susilo Bambang Yudhoyono is committed to the policy to bail out the bank and whether this policy is justified on the basis that Indonesia was under pressure due to the global crisis. Of course, by standing on his man and woman, Yudhoyono would be further involved in the case.

Especially for a significant number of politicians, Yudhoyono is the ultimate target. Since the BPK audit mentioned no legal basis for the policy, it is necessary for Yudhoyono to cover the policy base.

Otherwise, Sri Mulyani and even Boediono may be uncovered on the policy that they used to save the country from the brink of collapse due to the global crisis. The President should not worry about the political implication, especially if he believes that there is no money from the bank running into his inner side. This also counters any speculation about the matter.

On the issue of the decision to allocate a significant amount of money and let the depositors withdraw the money, the main responsibility sits with the LPS. Of course, the KSSK was reported, but under the LPS law, it is the LPS that was responsible for the money injected into the bailed out bank. Meanwhile, it is BI’s responsibility for the weak bank regulation in this long involved fraud of Bank Century.

Formally, it was Boediono’s responsibility as governor of BI, but Boediono’s capacity at that time was mainly on the systemic risk of the policy. As stated in the audit of BPK, the weak supervision of the Bank century had continued for a long time since the merger of three banks into Bank Century in 2005. There is a strong view from the banking community that the bank should have closed down a long time ago.

On the issue about money flow, especially from the withdrawal from the bailed out bank, the Indonesia Financial Transaction Reports and Analysis Center (PPATK) can trace it. There is always the possibility of fund misuse for political purposes. But this must be proven in the court.

If Yudhoyono is committed to stand by his man and woman in making a decision to avoid the systemic risk, there should not be a problem at the policy level. This means Sri Mulyani and Boediono made the right policy at that time. The situation would be complicated if the President does not want to be committed, that would mean Sri Mulyani and Boediono may face tough political and legal battles without political cover. Anything could happen for them with negative consequences on the economy.

However, the improvement of the economic condition in general might not be so dangerous economically. While, politically there may be two possibilities, whether the opponents may continuously attack Yudhoyono even though Sri Mulyani and Boediono were victimized, or there may be political settlement by political accommodation, among others, through cabinet reshuffling, giving more posts to the opponents.

Certainly, by committing to his man and woman, the case may be a lot easier to solve. Or perhaps Yudhoyono is worried that people in his inner circle are closely connected to the case. Even with this case, while Yudhoyono did not give direct instruction, he will be safe politically and legally. Of course, those people connected to the case should be responsible before the law.

This is the better option than letting credible people in the economic policy, Sri Mulyani and Boediono, to run uncovered to deal with the tough legal and political battles, which are not in their expertise.

We are quite worried that, as usual, Yudhoyono is procrastinating in determining the situation to move forward. This procrastination may be costly, as we experienced with the case of the Corruption Eradication Commission (KPK) versus the National Police, and even on the classic delay of infrastructure development. The “buying time” strategy is costly not only to the President, but to the nation. Again, we hope that Yudhoyono will take a firm position and move things forward.


The writer is chairman of CIDES (Center for Information and Development Studies) and a senior fellow at The Habibie Center.

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