April 2010
Touted as the next Bric country, Indonesia has avoided the worst of the financial crisis and its economy is powering ahead - but is that despite or because of a vacancy at the head of the country's central bank? Eric Ellis investigates
IN 1939, THE UK’s leader, Winston Churchill described Russia as "a riddle, wrapped in a mystery, inside an enigma". If the canny old warhorse was around today, he might have offered a similar description of modern-day Indonesia.
This is a sprawling economy on the verge of joining the coveted Bric club of developing powerhouses – Brazil, Russia, India and China. Indeed, there is a growing body of economic opinion that the acronym should be Biic, bouncing the enigmatic Russia from the group, at least in population terms (Indonesia’s tally of 230 million people is 1.5 times that of Russia).
Some 12 years of wobbly reformasi after the 1998 fall of the kleptomaniac dictator Suharto and his family, an increasingly self-confident Indonesia seems set on securing its status – and moral authority – as Islam’s biggest democracy. Susilo Bambang Yudhoyono, known as SBY, was the country’s fifth president in six years when he took over in 2004; now he has been in office for six years, democratically elected twice. The economy is ticking over at 6% to 7% annual growth, and seems likely to do so for the foreseeable future. Rating agencies now smile approvingly at Jakarta, and its bankers just got away one of the world’s biggest sovereign sukuks.
Fewer Indonesians today go to neighbouring Singapore for life’s consumer essentials – the big brand names come to them. The rupiah has been one of the world’s strongest currencies since the Lehman Brothers meltdown of late 2008. Indeed, the resultant global financial crisis dealt Indonesia barely a glancing blow, partly because it wasn’t sufficiently integrated into the world economy but mainly thanks to the sure-footedness of its much-lauded finance minister, Sri Mulyani Indrawati, armed with SBY’s 2009 electoral mandate. Inroads have even been made into its notorious levels of corruption, and travellers rushing to Jakarta airport no longer get swamped by floodwater along the seaside airport tollway during high tides.
That all seems fairly encouraging – standard developing nation economics 101, as
it were. Tarnished Indonesia is at last presenting itself as a model of economic
management, looking remarkably normal for a country that has been anything but
in recent decades.
Except that it is not, and this is where the update on Churchill’s conundrum comes in. Successful countries are supposed to have smooth-running hierarchies at their central banks. Yet the governorship of Bank Indonesia has been vacant since May last year after the single-named Boediono – who had been in the job for barely a year – was tapped by SBY to run as his vice-president in last year’s elections. Boediono had himself reluctantly taken over from Burhanuddin Abdullah, who was governor for five years – the last year or so of which was spent in jail, where he directed policy from his remand cell. Abdullah, the 2007 recipient of a national award for "meritorious service to the nation", was found guilty of corruption in October 2008, only to be released from prison in March this year ahead of term.
Without a leader
One would think that having a rudderless central bank during the most serious crisis in global finance since the Great Depression would be a prescription for economic disaster, particularly in a country as famously fragile as Indonesia. Instead, mysteriously, Bank Indonesia’s governor-free period has coincided with one of the country’s most buoyant eras, as singed foreign investors have piled back into its often-quixotic capital markets. Mindful of Bank Indonesia’s controversial recent history, when parliamentary and media probes unearthed a deep-seated culture of corruption throughout the bank and the parliamentary committee that regulates it, observers have only half-joked that it is because BI has been leaderless that Indonesian monetary policy has been so admirable over the last year.
Aburizal Bakrie: Indonesia’s richest man has pointed the finger at his enemies
Indeed, a year on from Boediono’s departure, no one in Jakarta seemed too fussed that Bank Indonesia doesn’t have a boss. For much of the year it had barely been a topic for meaningful discussion or debate. That’s because parliament has been obsessed with the nationally televised Bank Century drama, where politicians from the once-powerful Golkar Party, led by the country’s richest man, Aburizal Bakrie, sought to finger Mulyani and Boediono for alleged wrongdoing in Bank Century’s $720 million rescue in late 2008, as the Lehman crisis deepened and threatened to infect the islands.
Bakrie nurtures one of Asia’s most enduring feuds with Mulyani – and there is no love lost on her side either. Bakrie still seethes at Mulyani’s manoeuvrings in 2008 when he – then a cabinet minister – faced the loss of his mining-led Bakrie Group in a funding crisis. A year on, many Indonesians maintain that the Bank Century probe into Mulyani’s handling of the 2008 bailout was Bakrie’s revenge, as he mustered Golkar’s numbers in parliament in an attempt to force a probe and Mulyani’s resignation. (Bakrie once said that as finance minister, Mulyani made a "good cashier".)
The parliamentary probe into Bank Century came to an end in early March, with a predictable, sclerotic split on party lines. SBY’s coalition allies voted that the Bank Century bailout had been correct and prudent, in effect saving the economy at a crucial time as the wider financial world was crashing, while Bakrie’s Golkar and its supporters determined that "there were indications of corruption, violations of banking and state finance policies, money-laundering and other general crimes".
Wimar Witoelar, political analyst and aide to ex-president Abdurahman Wahid, perhaps best captured a resigned national mood in describing the Bank Century drama as an "ordeal... victimizing Sri Mulyani and Boediono [and] a long list of good things we have worked so hard to achieve in the last 10 years". He adds: "At the top of the list is the challenge to political decency by election losers who cannot wait until 2014 to ascend to power. The affair was taken off the shelf after other issues failed to derail the SBY bandwagon. Many more items are damaged by the cynical cabal that destroys what it cannot win."
Top slot
One of those items seems to be resolving the increasingly gaping central bank governor vacancy. Since SBY lured Boediono to his ticket, Bank Indonesia has been notionally led by Sumatran economist Darmin Nasution, its senior deputy governor, taking over from art-loving socialite Miranda Goeltom, who found herself somewhat sidelined – and overlooked a third time for the governorship – after allegations arising from the tainted Abdullah era. Sorbonne graduate Nasution was formerly Indonesia’s most senior taxman, where he won plaudits for his efforts to lift the national tax take. Now he is believed to be positioning himself to be formalized into the top slot.
But after the protracted Bank Century parliamentary farce, competence and technocracy seem destined to fall victim to politics; and observers suggest Bakrie and Golkar might seek to inflict more parliamentary hurt on SBY by disputing his suggestions for Bank Indonesia. Three other names touted for the governorship, or at least the central bank board, are Halim Alamsyah, Bank Indonesia’s director of research and regulation; Perry Warjiyo, its monetary policy research boss; and Bank Danamon director Krisna Wijaya.