Bank Indonesia Deputy Governor Budi Mulya became the latest target of probes into the 2008 PT Bank Century bailout that have threatened President Susilo Bambang Yudhoyono’s ability to fulfill his economic agenda.
Mulya is under investigation by the state auditor regarding a “personal” 1 billion rupiah ($112,000) loan he obtained from the former owner of Bank Century, Difi Johansyah, a spokesman at Bank Indonesia in Jakarta, said yesterday. The deputy governor was relieved of his role as head of monetary policy operations as of the end of last month while retaining the deputy’s post, Johansyah said. Mulya didn’t answer calls to his mobile phone seeking comment yesterday and today.
The Bank Century rescue at the height of the global financial crisis was attacked by Yudhoyono’s own political allies, with parliament voting last year for a criminal probe of Vice President Boediono and then Finance Minister Sri Mulyani Indrawati. Mulya’s case may reinforce a perception of corruption in a country where graft was rated the “most problematic factor” for doing business by the World Economic Forum.
“This is just one of many” cases involving the central bank’s leadership, said Hal Hill, professor of economics at Australian National University in Canberra who specializes in Indonesia. “There is a link between foreign investment inflows and how countries are ranked on these corruption indicators.”
The Jakarta Composite index of stocks slid a second day, falling 1.1 percent as of 1:32 p.m. local time. The rupiah fell 0.7 percent to 8,960 a dollar.
While graft remains a worry for investors in Southeast Asia’s biggest economy, the more immediate concern is that the European debt crisis will slow global growth and is “not solely confined to Indonesia on corruption,” said Lye Thim Loong, who helps manage about $770 million at Libra Invest Bhd. in Kuala Lumpur.
“It’s one of the concerns, especially in a country with all this political risk,” he said. “Indonesia is one of the countries that have shown their willingness to combat corruption. Basically leave it to the authority to do this. The country is progressing on the right track.”
Still, President Yudhoyono’s popularity has fallen to a record low, with a poll by Indonesian Survey Circle in June showing 47.2 percent approved of the leader who was elected in 2004 and returned to power in 2009. He garnered 61 percent of votes cast in 2009.
Corruption, government inefficiency and poor infrastructure were among reasons that dragged Indonesia down two places to 46th out of 142 economies, according to the World Economic Forum’s Global Competitiveness Report 2011-2012.
Bank Century, and its 6.7 trillion-rupiah government bailout in 2008, was at the center of a campaign by opposition lawmakers against Boediono and Sri Mulyani Indrawati, who left last year to become one of the World Bank’s managing directors. Two major partners in Yudhoyono’s coalition, Golkar and the Prosperous Justice Party, joined the opposition in accusing the officials of abusing their authority during the rescue.
The parliament’s vote in March 2010 for a criminal probe targeted two officials familiar to investors and threatened to distract Yudhoyono from his agenda of improving infrastructure and overhauling the legal system.
Boediono was central bank governor when the Bank Century rescue was approved. In 2008, Boediono’s predecessor at the central bank, Burhanuddin Abdullah, was found guilty by the country’s anti-corruption court of illegally transferring funds to Indonesian lawmakers. Abdullah denied any wrongdoing.
Mulya obtained a loan from a Bank Century owner in October 2008 and returned it in January 2009, Johansyah said. The probe is part of a state audit of the lender, he said yesterday.
Hadi Poernomo, chairman of the state auditor, declined to comment on the Mulya case when stopped at parliament by reporters today, saying the investigation into Bank Century will be completed in November.
Mulya’s new role will include overseeing the central bank’s assets, museum, bureau secretariat and representative offices, Johansyah said. Deputy Governors Halim Alamsyah and Hartadi Sarwono will assume Mulya’s role, he said. Alamsyah will lead the central bank’s monetary policy operations and Sarwono will lead its foreign-exchange reserve management, Johansyah said.
The central bank already has one vacancy among its six deputy governor positions, after Budi Rochadi died in July. A third deputy, Muliaman Hadad, has his term finishing in coming months. Governor Darmin Nasution took office last year after Bank Indonesia went more than a year without a leader.
Policy makers are in the midst of managing a rising challenge to sustain growth in the nation with the world’s fourth-largest population, as Europe’s debt woes and a faltering U.S. economy hurt the global recovery.
After strengthening 5.4 percent against the dollar in the first eight months of the year, Indonesia’s rupiah fell about 3 percent last month even as the central bank said it would buy bonds and intervene to support the currency “until the market cools.” The Jakarta Composite index (JCI) of stocks has dropped 21 percent from its high of the year reached in August.
Indonesia’s inflation slowed in September, giving the central bank room to leave interest rates unchanged as global growth slows. Consumer prices rose 4.61 percent last month from a year earlier, the Central Bureau of Statistics said in Jakarta yesterday.
Easing prices may increase Bank Indonesia’s readiness to lower borrowing costs and protect growth after Deputy Governor Sarwono signaled last month that the central bank has room to cut rates if inflation “behaves.”
Bank Indonesia kept the benchmark reference rate unchanged at 6.75 percent for a seventh month in September. Policy makers are ready to “adjust the rate and mix monetary policy toward loosening” if price gains slow and the economy expands less than expected due to a global slowdown, Perry Warjiyo, the bank’s director of economic research, said last month. The next rate decision will be announced Oct. 11.
“This case will give little impact to Indonesia’s monetary policy as we see that when there was no governor for about one year, monetary policy was still doing well,” said Fauzi Ichsan, a Jakarta-based senior economist at Standard Chartered Plc. “BI must contain the issue to prevent it from affecting its overall reputation.”
To contact the editor responsible for this story: Chris Anstey in Tokyo at firstname.lastname@example.org