Indonesia: SBY struggles to live up to expectations

Author: Hal Hill, ANU

When Prime Minister Rudd talks with President Yudhoyono this week, they will be able to reflect on what a fickle, mean and unpredictable business politics is.

Four months ago, the mood in Indonesia was extremely positive: Susilo Bambang Yudhoyono (universally known as SBY) had been installed for a historic second term. He had chosen Dr Boediono, the country’s most respected technocrat, as his vice president. His Democrat Party had emerged as a major force in the DPR, the country’s parliament.

He had appointed a team of top class officials to the key economics posts in his cabinet. And it was also clear by then that Indonesia had come through the global financial crisis largely unscathed.

Fast forward to early 2010, and his administration is under attack from many quarters. The position of his two key economics officials, Vice President Boediono and Finance Minister Mulyani, is increasingly parlous. The nation has become ‘paralyzed’, in the words of the leading Jakarta Post daily. SBY himself seems unable or unwilling to silence the criticism.

Following the report of a special committee, the DPR last Thursday voted 60:40 to assert that violations had occurred in the Bank Century case, with only three of the nine parties (the Democrats and two of its smaller allies) voting against the motion. There have been noisy, disruptive ‘rent-a-crowd’ demonstrations daily in Jakarta for months, further inflaming public sentiment.

The discontent has originated from two sources, both within the government’s unwieldy coalition, and both having powerful constituencies.

The first originates from the chairman of the Golkar Party, Aburizal Bakrie. He is a long time power broker, the country’s pre-eminent pribumi (indigenous) businessman, and the coordinating minister for social welfare in the last Yudhoyono administration. There has been a long-running dispute between Bakrie and the able, forthright Finance Minister. Dr Mulyani threatened to resign at the peak of the global financial crisis in late 2008 if the bailouts then proposed for Bakrie’s extensive business interests proceeded. There is also a major dispute over his taxation liabilities.

These critics of Mulyani, and by extension Boediono, have focused on the Rp 6.8 trillion ($815 million) rescue of a minor bank, Bank Century, in late 2008. The full details of this operation have yet to be revealed – in particular why its scale escalated 10-fold – and the central bank has some explaining to do.

But the key point is that, as the global financial crisis began to hit hard emerging market economies like Indonesia, the government responded promptly and effectively to ensure that there was no financial meltdown. Boediono and Mulyani were signatories to the rescue operation, but allegations that they acted improperly, or in some way were personal beneficiaries, are absurd.

The second source of discontent has come from the Moslem-oriented political parties, who haven’t come to terms with SBY’s vice president. They were unhappy principally because they were denied the spoils of office, especially the largest and best organised of these, the PKS (the Prosperous Justice Party), which has become a major force in Indonesian politics.

The PKS has branded Boediono, Mulyani and others as ‘neolib’, a vague, pejorative term, and an attack on the market friendly economic philosophies and policies of Indonesia’s influential ‘technocrats’. Ironically, of course, the Yudhoyono administration could never be accused of running a concerted liberal economic policy agenda.

This process is now likely to drag on for months. It is probable – but by no means certain – that there won’t be any major scalps.

But the longer-term implications are serious. First, the presidency has been weakened, and the administration greatly distracted from its reform agenda. Second, the DPR has been greatly emboldened. And if it can be ‘bought off’ in this case, what will stop it in the future, when greed attempts to derail economic policy? Third, the wheels of the Indonesian bureaucracy will slow even further. What official in his or her right mind would sign anything – from a major infrastructure project to a firm rescue – with this sort of treatment a possibility?

Democracy can be messy. The world has celebrated Indonesia’s peaceful democratic transition over the past decade. It is of course too early to characterise the SBY administration as lame duck, as some have. But the president will need to work hard to rebuild his stocks of goodwill and respect.

One thing is for sure: the administration will face an even tougher time getting its bills through the DPR, remembering that Indonesia has a US-style division between the executive and the legislature.

This article first appeared in the Australian Financial Review on March 8, 2010 as ‘Indonesia being weakened by factionalism’

Hall Hill is the HW Arndt Professor of Southeast Asian Economies at the Australian National Universtiy.