Indonesia Ex-Central Banker Gets Jail for Bank Bailout Graft

Former Bank Indonesia deputy governor Budi Mulya was sentenced to 10 years in jail for corruption, the latest high-profile conviction that shows how policy making in Southeast Asia’s biggest economy is undermined by graft.

Mulya was handed a 500 million rupiah ($43 million) fine over decisions made during the 2008 global financial crisis related to the government’s $573 million bailout of Bank Century, Afiantara, the head judge at the court trial in Jakarta, said yesterday. Mulya, who headed the central bank’s monetary operations, was detained in November after a probe of a 1-billion-rupiah loan he obtained from the former owner of Bank Century, now called PT Bank Mutiara.

The verdict reflects both the extent of graft in Indonesia and the challenge for the country’s next president in stamping out corruption in order to foster growth. Indonesia’s Vice President Boediono, 71, who was Bank Indonesia’s governor when the government bailed out Bank Century, testified as a witness in the case earlier this year.

“The assumption that a policy can’t stand trial has been debunked,” said Ikrar Nusa Bhakti, a political analyst at the Jakarta-based Indonesian Institute of Sciences. “The new government should learn from the bailout case” of Bank Century, he said. “There’s no need to be afraid if decision making is transparent, accountable and independent.”

Indonesia ranked 114th among 177 countries in a 2013 Transparency International survey on corruption perceptions, and combating graft has taken center stage in Indonesia’s presidential election race. Candidates Joko Widodo and Prabowo Subianto sparred over the issue in a final televised debate ahead of the July 9 vote.

Systemic Risk

The country’s stock market has rallied 20 percent this year in part on hopes that frontrunner Widodo, known as Jokowi, will tackle graft and red tape by moving more bureaucratic processes online. Jokowi is leading Prabowo Subianto with more than three-quarters of votes counted, according to websites tallying actual results, with official results due by July 22.

The central bank’s decision to say a Bank Century failure would pose a systemic risk, changing a short-term financing rule to allow it to get a 6.7 trillion-rupiah bailout and handing it over to the state deposit agency without a financing limit, was corrupt, the court ruled.

“The act of the defendant was counter-productive with efforts to eradicate corruption in Indonesia,” the court said in a statement. “The act of the defendant has undermined the image of Bank Indonesia as a central bank.”

After the verdict, Mulya, 59, told the court he would appeal.

Financial Crisis

“This decision will also deter policy makers in taking decisions going forward in a time of financial crisis,” said Fauzi Ichsan, a Jakarta-based economist at Standard Chartered Bank Plc. “Banks in need of a bailout will be left bankrupt.”

The state deposit guarantee agency took over Bank Mutiara after the bailout, and now is seeking to sell it. Potential investors from Malaysia, Singapore, Japan and Indonesia are bidding, Samsu Adi Nugroho, the corporate secretary at the agency, said on June 13.

While President Susilo Bambang Yudhoyono was re-elected for a second and final term in 2009 on a platform of getting tough on corruption, his Democrat party has been undermined by graft scandals and came fourth in April parliamentary elections. Yudhoyono’s former sports minister Andi Mallarangeng is currently on trial for alleged corruption in the construction of a stadium, with a verdict expected this week.

Indonesia ‘Mafia’

During one of the presidential campaign debates Jokowi’s running mate Jusuf Kalla said the two had no “mafia” by their side, while ex-general Prabowo said democracy was at risk of drowning in improper practices.

The country’s anti-graft agency, known as the KPK, has convicted central bankers, ministers and chief executives, and says it is just scratching the surface of corruption.

Miranda Goeltom, a former senior deputy governor at the central bank, was jailed in 2012 for bribery involving her election to the post. The former head of the constitutional court, Akil Mochtar, was sentenced to life in prison on June 30 after a conviction for graft and money-laundering.