Indonesia is not heavily dependent on international demand for its products, nor is it greatly exposed to reckless big-name banks and other financial institutions in the US and elsewhere. It learnt much from the Asian financial crisis in the late 1990s, when poor policy choices made the impact of the crisis far worse than it should have been. At that time, cuts in government spending amplified those by the private sector, and extremely loose monetary policy guaranteed a surge in inflation and collapse of the currency, in turn resulting in implosion of the banks. All of this fed, and fed off, political disruption, culminating in the resignation of president Soeharto after more than three decades in power. By contrast, the impact of the global financial crisis peaked in Indonesia shortly after SBY had been returned to office in a landslide victory.
An interesting parallel between Indonesia and Australia is the extraordinarily rapid deterioration in each administration’s political comfort level. The Rudd government has seen an alarmingly sudden drop in public support – notwithstanding Australia having weathered the crisis easily. The SBY administration, too, has suffered an equally alarming decline of its authority within Parliament, resulting from the so-called ‘Bank Century scandal’ – the $800 million bailout of a small bank at the height of the crisis. Amid uproar in the Parliament last week, a special committee of enquiry voted along party lines to recommend further investigation of the matter by the law enforcement agencies.
This was simply political theatre. The episode should be seen in the context of efforts to eradicate corruption. Specifically, it should be seen as just one element of a mounting reaction by those threatened by these efforts. To paraphrase one Jakarta commentator, politics turns logic on its head . The innocent are wrongly branded as thieves; but the accusation is made by the real thieves, precisely in order to hide their own activities.
Where is corruption to be found in Indonesia? Unfortunately, it infects the entire public sector, including the bureaucracy, the law enforcement agencies and the judiciary, not to mention the Parliament itself. Endemic corruption is part of the Soeharto legacy. As a consequence, anti-corruption efforts can more often than not expect opposition rather than support from within these institutions.
One important anti-corruption institution is the Supreme Audit Agency. Late last year the Parliament appointed a former director-general of the taxation office as one of its commissioners. This individual had been removed from his position by the incoming Minister of Finance, who was determined to overcome deep seated corruption in the tax office. Members of Parliament are supposed to protect the interests of the general public, but it is hard to interpret this as anything other than a move to protect the interests of those in the public sector who have much to lose from the existence of a strong audit agency.
In similar vein, the national police struck back at the Anti-Corruption Commission after it began to act against high ranking police officers, arresting two of the commissioners on trumped up corruption charges. Public outrage forced a backdown when the commission produced recordings of phone conversations that clearly pointed to conspiracy.
Members of Parliament have also become targets of the Anti-Corruption Commission, and have reacted by watering down the legislation on which the success of its operations depend. And now they have allowed themselves to be used by parties for whom genuine reform is anathema.
After three months the special committee of enquiry found no evidence of corruption in relation to the Bank Century bailout. Indeed, the committee that decided in favour of the bailout seems to have followed the letter of a law passed by that same Parliament just four years earlier – a law that set out the procedures to be followed when banks became insolvent. Whether it was necessary to bail out the bank in order to prevent a sudden collapse of Indonesia’s banking system – as occurred in 1998 – might be debated endlessly. But what is clear is that the law required the committee to exercise its professional judgment on this issue in precisely the way it did.
Although the reformist Vice President and Minister of Finance now seem safe in their positions, it is difficult now to imagine how the second SBY administration can recover the momentum of reform, given the shabby manner in which the parties that comprise the ‘rainbow coalition’ cabinet continue to behave.
Ross McLeod is associate professor and editor of the Bulletin of Indonesian Economic Studies in the Crawford School of Economics and Government in the College of Asia and the Pacific at the Australian National University.