VZCZCXRO3855
OO RUEHDT RUEHPB
DE RUEHJA #1965 3351050
ZNY CCCCC ZZH
O 011050Z DEC 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3953
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RHMCSUU/FBI WASHINGTON DC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP PRIORITY 0160
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L JAKARTA 001965 
 
SIPDIS 
 
DEPT FOR EAP, EAP/MTS, EAP/MLS, EAP/RSP, E, EEB, INL 
DOJ FOR CRIM AAG SWARTZ, DOJ/OPDAT FOR BERMAN 
NSC FOR D.WALTON; MCC FOR ISMAIL 
 
E.O. 12958: DECL: 12/01/2019 
TAGS: PGOV ECON KJUS KCOR SNAR ID
SUBJECT: BANKING SCANDAL DISTRACTS YUDHOYONO FROM REFORM 
EFFORTS 
 
REF: A. JAKARTA 1950 
     ¶B. JAKARTA 1946 AND PREVIOUS 
     ¶C. JAKARTA 1847 
     ¶D. JAKARTA 69 
 
Classified By: Ambassador Cameron Hume, reasons 1.4 (b+d) 
 
 ¶1. (C) SUMMARY. Managing public perception and scrutiny 
regarding the ongoing scandal surrounding the bailout of Bank 
Century threatens to derail President Yudhoyono,s reform 
agenda.  If unsubstantiated allegations that bailout funds 
were diverted to his political party or family are confirmed, 
Yudhoyono,s presidency could be endangered.  This drama pits 
vested interests against reformers and the ruling party 
against opposition parties.  It could also make it more 
challenging for the U.S. to engage with credible partners. 
END SUMMARY 
 
AN EMERGING CRISIS 
 
¶2. (SBU) As the scandal involving Indonesia,s Corruption 
Eradication Commission subsides, allegations of official 
wrong-doing in the decision to bail out Bank Century have 
overtaken the political buzz in Jakarta.  The controversy 
stems from a decision in November of 2008 to bail out the 
troubled bank in order to prevent systemic risk in a 
questionable global financial climate.  Allegations of 
official wrongdoing in the case have centered on whether the 
bailout of the bank was needed and, more importantly, whether 
influential individuals or political parties received 
bail-out funds. 
 
¶3. (U) On November 23, GOI,s Supreme Audit Board (BPK) 
released a lengthy audit of the decision to bail out the 
bank. The audit suggested that Finance Minister Sri Mulyani 
Indrawati and then-Bank of Indonesia Governor (now Vice 
President) Boediono took illegal action in rescuing the bank. 
 The report ignored, however, the question of whether 
recapitalization was misallocated.  Finance Minister Mulyani 
has publicly rebutted allegations that the Ministry of 
Finance or the central bank acted inappropriately, providing 
legal justification for action taken to bail out the bank. 
 
...OF THE POLITICAL ELITE? 
 
¶4. (SBU) Nevertheless, the political and public fallout from 
the scandal still dogs the administration.  Public 
demonstrations around Indonesia calling for the suspension or 
dismissal of both Indrawati and Boediono persist. 
Indonesia,s Parliament voted on December 1 to commence a 
formal inquiry into official wrongdoing on the part of the 
administration which will divert efforts of the fledgling 
government to initiate its 100-day programs. 
 
¶5.  (C) Some observers suggest that the Bank Century case is 
just the latest episode in a continuing battle over economic 
policy waged between the technocrats on one side and those 
with vested business interest on the other.  Reform-minded 
contacts in Indonesia,s Chamber of Commerce and Industry 
worry that the scandal will marginalize technocrats Mulyani 
and Boediono, thereby diluting the administration,s 
effectiveness in pressing for institutional and economic 
reforms. 
 
CAN THE KPK GET BACK ON ITS FEET? 
 
¶6.  (SBU) In the meantime, the KPK has taken the lead in 
investigating allegations that funds may have been improperly 
diverted.  The Supreme Audit Board asserts that it is unable 
to track where funds may have been transferred and has left 
this task to law enforcement authorities.  Many believe that 
the KPK is the most credible organization to perform criminal 
investigations after allegations that a high-ranking police 
official was involved in the Bank Century scandal.  However, 
some civil society leaders suggest that a weakened KPK will 
find this case difficult to pursue. Given the possibility of 
a prolonged Parliamentary inquiry into the case, allegations 
of official corruption are likely to dog the administration 
for the next several months. 
HUME