In other words, had there been no intervention or confirmed response to the indicated crisis, the risk would’ve been that the crisis may have happened today at an unexpected scale.  

The above argument raises concerns from the proponents and opponents of the policy. It is controversial simply because there are risk and uncertainty in both action/inaction to the crisis – which is largely underestimated by both camps. Therefore, one should understand how decision making among high levels of uncertainty, especially when the ghosts of the 1998 financial crisis dominated the perception of the responsible authority during 2008 and 2009.

Boediono and Sri Mulyani Indrawati, have maintained that the decision to bailout the bank was right, especially when it is understood under the context of the global crisis, which may (or may not) have created systemic threats to the banking sector. The anatomy of the Finance Ministry’s White Paper is as follows — it starts with the global crisis, it’s “epicenter” in the United States, which propagated a “tidal wave” to Europe and the United Kingdom.

The fear was, based on the experience of the 1998 financial crisis, that sooner or later the crisis would find its way to Indonesia. The measures taken to mitigate the identified threats were simply legitimized by the formal process of relevant stakeholders and the chronology towards the final decision to bailout Century. The paper shows a flow similar to the anatomy of an early warning system.

Abundant knowledge about early warning and early response systems (EWERS) in the field of disaster and crisis prevention are available for financial crises application. The knowledge may shed some light onto the Century case, which can help reduce the controversy by explaining the nature of uncertainty and risk surrounding the controversy.

Depending on the character of the type of threat, some creeping threats may not seem apparent to the lay public but send shivers through the professional community who monitors the indicators of threats. In the case of EWERS for the financial crisis, information should be based on several factors, such as confirmed indicators about the tides of the global crisis, including that the propagation of the crisis may be further triggered by the domestic public’s perception regarding weak governance of the financial crisis. Therefore, Bank Indonesia could have played a role in this despite the inherit nature of uncertainty of the data.  

Both Sri Mulyani and Boediono have confirmed again and again that they took action to save the national ecenomy by preventing a possible systemic downfall of the country’s banking system by saving Bank Century during the global financial crisis. The benefit of the intervention is the crisis that did not happen until now. This is simply an argument of effectiveness.

It is prone to controversy and political conflict because the nature of uncertainty in the knowledge, information and data is high. Unfortunately, the decision should have been made before it was too late to mitigate the possible threats.

In order to reduce public criticism and controversy, certain vital aspects should also be considered. The White Paper adds effectiveness, efficiency, legitimacy and equity to the list as well as the effectiveness argument above. Apparently, the proponents of the Century bailout neglect these important principles. The decision was solely based on the aspect of effectiveness. Quality of data from Bank Indonesia was mentioned as one of the pitfalls. “The politics of fear” to the systemic risk of financial crisis inherented from the 1998 financial crisis is the other variable mentioned by Boediono on many occasions.

European governments were quick to respond to warning signs of the crisis. In this case, regardless of the possibility of miscalculating the risk including amplification of the financial risk from the actual objective risk, the Century bailout can be justified. In times of extreme uncertainty it is dangerous to underestimate the little things that could trigger a crisis.

It should be clear that either attenuating or amplifying the actual risk is bad. However, the problem is that the objective risk never exists because of the subjective judgment embedded in the decision makers’ perception of the problem.

The controversy can be reduced if the inquiry team takes a balanced approach to consider some important factors such as efficiency, equity and legitimacy. If the bailout was indeed legitimate, every Rupiah spent on the bailout should have saved an amount far bigger than that spent. Therefore, rational calculation on cost and benefit analysis should be done.

The question today is not about whether or not the calculation is done. The question is how it is done and later communicated to the relevant stakeholders and the public at large. How were different scenarios about of the risks and benefits of action/inaction in the Bank Century bailout communicated to the public?

 It is often accepted that the effects of crises on the public are mediated by social, economic and political factors. In this case, the political factor has received the blame in this case due to the coincidence of the general election in 2009. The ruling party is at at the center of this blame. The answers depend on the individual, but a good leader should win the hearts and minds of the people.

In addition, there is an anomaly in the policy making processes in Indonesia as clearly seen in the Century case, where the regime tended to produce rushed White Papers to justify their policy after intense public criticism. The truth is that White Papers should have come first as a rational justification to the policy remedy, which may have invited more constructive input before the decision was made.

Should this be done for any major decisions, more constructive policy planning and decision making in times of crisis can be made without undermining accountability and transparency.

One of the resorts to mitigate the controversy is the consideration of equity and justice. Former vice president Jusuf Kalla, who did not agree with the bailout, argued merely from the point of equity principle. He also employed “the politics of fear” argument based on the experience of 1998, where rich people and bank thiefs helped themselves while the poor were left behind. However, who would have paid the cost of inaction had the crisis hit the country?

Regarding the “rightfulness” of EWERS to mitigate the financial crisis, the central problem that led to the controversy is that the decision seemed to undermine the superiority of the commander in chief at that time, vice president Jusuf Kalla. In addition, the ambiguity of the DPR on the policy at the time of urgency was clearly a serious problem.

There was little room for the stakeholders to question the bailout process. There was the illusion of “politics of fears” at work, which undermined the public inquiry into why it cost Rp 6.7 trillion and not Rp 3 or 5 billion? By avoiding public scrutiny and inquiry at the outset of this issue, the progators of the bailout have in effect undermined the trust and legitimacy of the government today.


The writer is a PhD Candidate at the University of Bonn, Germany, and co-editor of Journal of NTT Studies.

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