With new reports surfacing this week of the possible replacement in February of Dr Sri Mulyani Indrawati as Finance Minister in the second SBY Cabinet, readers may be interested in the following article, originally published in Indonesian in Koran Tempo (on 17 December 2009) :
Ross McLeod and Arianto Patunru
The Indonesian public are justifiably fed up with corruption. But they seem to have seen through the fact that the widespread protests on December 9 amounted to a cynical attempt on the part of the beneficiaries of corruption to exploit this concern in order to bring down two champions of integrity in government – Finance Minister Sri Mulyani and Vice President Boediono.
One of the first things Sri Mulyani did when she became Minister was to replace the directors-general responsible for tax and customs, whose directorates were widely perceived to be hotbeds of corruption on a grand scale. She also rid the customs office of more than a thousand officials suspected of being corrupt. Beyond sending these clear signals of her intentions, she then embarked on far-reaching bureaucratic reform throughout her ministry, with a view to both eradicating corruption and improving organisational effectiveness. We also recall how she bravely refused last year to bow to pressure from her then ministerial colleague, Aburizal Bakrie, now Chairman of the powerful Golkar Party, to close the stock exchange amid a run on companies controlled by Bakrie, as she herself revealed in the Wall Street Journal recently.
During his own time as Minister of Finance in the Megawati administration Boediono built some of the foundations for such reforms by initiating a clean-up of the tax office. In addition, he pushed to cut back corruption in the entire public sector by establishing the basis for proper financial accounting within it. Three new laws supporting this objective were enacted, and a new set of special accounting standards was developed, to be applied to all government organisations.
In combination with the newly empowered State Audit Agency, BPK, these changes to the processes of governance are capable of contributing strongly to efforts to wipe out corruption. Unlike the arrests of high officials and their subsequent trial and imprisonment, they go largely unnoticed by the media and the general public, however. But proper financial reports create a chain of documentary evidence concerning the use of public monies and assets that makes it much more difficult for corrupt officials to escape detention.
Boediono set the tone by requiring accurate statements of annual budget outcomes to be produced and made public within six months, whereas in the past such reports appeared only after delays of a year or two – and even then were unreliable and practically impossible to audit. These reforms, applied throughout the public sector, generated virtually no headlines, but they are absolutely essential to the task of keeping governments at all levels honest.
Of course, those who benefit from corruption are bound to oppose reforms that threaten them with financial losses and the possibility of imprisonment. Understanding this is essential to understanding what has been going on in Indonesian politics over the last few months.
The Anti-Corruption Commission, KPK, has been extraordinarily successful in putting corrupt officials behind bars. But this success has threatened powerful institutions, including both the police and the parliament (DPR). The police fought back by bringing bogus charges of corruption against two of KPK’s deputy commissioners, before eventually backing down after intervention by the president. For its part, the DPR has recently legislated to dilute the powers of the KPK, and has appointed the former Director-General of Taxation as the new head of BPK – the very same person Sri Mulyani had earlier removed from his position.
Current attempts to topple Boediono and Sri Mulyani need to be interpreted against this background. The accusation against them of corruption in relation to the bailout of a small bank, Bank Century, is totally at odds with their demonstrated anti-corruption record. The public also need to realise that when the Bank Century bailout occurred in October last year [2008], governments around the world were doing exactly the same thing, and for the same reason. The US, the UK and other countries, facing financial meltdowns, poured huge amounts of money into banks and other financial institutions because they feared that if they failed to do so their economies would collapse.
There was immense pressure on the Indonesian currency at the time, and stock prices were falling drastically, so it is hardly surprising that the Committee for Financial Sector Stability – chaired by Sri Mulyani and with Boediono as a key member as the then Governor of the Central Bank – decided to bail out Bank Century rather than risk the consequences of allowing it to fail. In taking this decision, the disastrous consequences of the banking collapse in 1998 – triggered by the failure of a number of similarly small banks – were still fresh in their minds.
As in other countries, it is impossible to know for sure whether the bank bailout was really necessary. What we do know, however, is that while most other economies in the region, along with almost all of the developed economies, fell into recession, Indonesia suffered only a small decline in its annual growth rate – roughly from 6% to 4%. Compare this with the drastic decline in 1998, from about 6% to -13%. The cost of the previous crisis in terms of lost production in just one year was about $46 billion; the corresponding cost of the global financial crisis to Indonesia’s economy – now far larger – is a much more modest $19 billion.
The December 9 protesters who defiled the names and images of Boediono and Sri Mulyani would do well to reflect on where Indonesia would be now had it not been for the skilful responses to the global financial crisis of the Central Bank and the Ministry of Finance. They, and the general public, would also do well to ask who will carry forward the fight against corruption if these champions are sacrificed? Who would be willing to risk his or her future to combat the dark forces of corruption following such a clear demonstration of lack of support from the people?
Ross McLeod is Editor of the Bulletin of Indonesian Economic Studies, published by the Australian National University
Arianto Patunru is Director of the Institute for Economic and Social Research at the University of Indonesia
It will be a terrible shame and great loss to Indonesia if Sri Mulyani is sacrificed because of the Bank Century bailout. I remember reading a Newsweek profile late in 2008 with the theme ‘Winners and Losers from the crisis’, with Sri Mulyani being highlighted for much praise. She was also awarded for being the best Finance Minister in Asia around the same time if I remember correctly. From speaking to friends about Boediono last week the general feeling seems to be that as long as SBY supports him, which SBY will obviously do, he will survive. Sri Mulyani’s future seems less certain…..