Even though over the past 10 years, eight former Bank Indonesia (BI) governors and deputy governors have been jailed for corruption or other forms of wrongdoing, I beg to disagree with the Jakarta Corruption Court’s panel of judges which decided on Wednesday that the November 2008 bailout of Bank Century (renamed Bank Mutiara) was made in bad faith and motivated by corruption.
Former BI deputy governor Budi Mulya did deserve severe punishment for his unethical borrowing of Rp 1 billion (US$86,095) from Robert Tantular, the former owner of Bank Century.
Even though the loan was personal and had been repaid, it was still a serious conflict of interest because, at the time, BI (the central bank) was still the supervisor of the banking industry.
But deciding that the $670 million bailout policy was made in bad faith and motivated by corruption would cause long-term damage to the government’s policy and decision-making capability, destroying the capacity and morale of policymakers, especially at the central bank and Finance Ministry.
If politicians could dispute or even attack a policy judgment made in good faith and in compliance with proper procedures, senior officials would not have the courage to take any economic or financial decisions, however urgent or imperative they may be.
The 3,700-page indictment of the prosecutors failed to reveal and prove who the main beneficiaries of the bailout measure were, as they could not find a single cent of the bailout funds flowing to then finance minister Sri Mulyani Indrawati (now a managing director at the Washington-based World Bank) and then BI governor Boediono (now Indonesia’s vice president).
If corruption was the motive, the big question then is who was so powerful that they were able to pressure Sri Mulyani and Boediono, both well known for their impeccable integrity and long careers within government, to abuse their authority in such an important, high-profile policy decision.
The court decision would only satisfy the ill-advised and corruption-infested House of Representatives that in March 2010 decided to order the government to conduct criminal investigations into the bailout process.
The main bone of contention with the House on which prosecutors built their indictment was that Bank Century was not qualified for BI emergency liquidity credit and was not a systemically important bank, thereby not entitled to be bailed out by the Deposit Insurance Corporation (LPS).
The Financial Sector Policy Committee (KKSK), chaired by Sri Mulyani and including the BI governor and deputy governors, argued that the financial system in late 2008 was so fragile due to the fallout from the
global financial crisis that began in New York, that allowing even a small bank such as Bank Century to fail at that time would have a domino effect on dozens of other similar-sized banks.
The financial crisis in the last quarter of 2008 was certainly not as severe as that in 1998 but the financial market was indeed in deep distress, as shown by the following developments:
The government decided on Oct. 12, 2008 to increase the ceiling amount of bank deposits covered by the LPS by 20 times, from
Rp 100 million to Rp 2 billion, to prevent capital flight as neighboring countries such as Singapore and Australia implemented a blanket guarantee on deposits.
The government issued a regulation in lieu of law on the establishment of the framework of a financial safety net that authorized the finance minister to lead the management of a financial crisis, indicating emergency conditions.
The rupiah melted from Rp 9,500 to the dollar to Rp 12,500, capital outflows reached $9 billion, more than 20 mid-sized banks suffered severe liquidity problems while the interbank market dried up.
Even the largest state banks in the country begged a liquidity injection of Rp 15 trillion from BI. Share prices collapsed and the stock exchange was closed for a few days in early October, 2008.
Given the critical condition, it was within the full authority of the BI board of governors and KKSK, based on the law on the financial safety net framework, to take such a contingency measure as changing the threshold for Bank Century to make it qualified for BI emergency liquidity credit, to prevent a full crisis.
After the bailout of Bank Century, Indonesia did escape the global crisis unscathed and the economy began to recover strongly in 2009 and expanded by around 6 percent a year until 2012.
However, Boediono and Sri Mulyani’s defense of the Bank Century rescue was made very weak after the discovery of the massive cost overruns of the actual bailout, the questionable massive withdrawal of deposits a few days before and after the bailout, as well as the discovery of banking crimes by the bank’s owners and management.
The situation became murkier after vested-interest groups at the House jumped in and exploited the bailout issue to hold the Susilo Bambang Yudhoyono government hostage.
But there is a caveat of debating now, that the situation has returned to normal and stable, as to whether Bank Century did pose a systemic risk to the banking industry. It is simply impossible now to reconstruct precisely the psychological condition of the policymakers and the national and international financial situation prevailing in November 2008.
Any decision involves a choice from a number of alternatives. Decisions can be a choice of complex admixtures of facts and values especially in a critical situation.
The consequence of the court’s verdict on Mulya is that as the bailout was based on a collective decision of the BI board of governors and KKSK, all executive members — including Sri Mulyani and the seven members of the then BI board of governors — should also be brought to court.
In another twist that could also rock the stability of the financial system, Muliaman Hadad, chairman of the Financial Services Authority, currently the sole supervisor of the whole financial services industry, was a member of the BI board of governors in 2008.
The writer is a senior editor at The Jakarta Post.
Vincent Lingga, The Jakarta Post, Jakarta | Opinion | Sun, July 20 2014, 11:50 AM
