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C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 000256 
 
SIPDIS 
 
DEPT FOR EAP, EAP/MTS, EAP/MLS, EAP/RSP, EEB/IPD/OMA 
NSC FOR D. WALTON 
TREASURY FOR IA T. RAND 
SINGAPORE FOR S. BLEIWEIS 
 
E.O. 12958: DECL: 02/25/2020 
TAGS: PGOV PREL ECON KDEM ID
SUBJECT: INTERNAL POWER STRUGGLE SLOWS PROGRESS ON REFORM, 
INDONESIA-U.S. PARTNERSHIP 
 
REF: JAKARTA 00222 AND PREVIOUS 
 
Classified By: DCM Ted Osius for reasons 1.4(b+d) 
 
¶1.  (C) SUMMARY:  President Yudhoyono's reform efforts are 
slowing as he grapples with elements of his own government 
who seek to preserve Suharto-era patronage norms.  Golkar and 
a cluster of other parties seek to undermine Yudhoyono's 
reforms by pinning responsibility for a controversial 2008 
bank bailout on the government, and principally on key 
reformers Finance Minister Sri Mulyani Indrawati and Vice 
President Boediono.  A legislative inquiry cast as an effort 
to promote transparency and good governance has served as a 
vehicle for parties, particularly Golkar -- the coalition 
party led by Aburizal Bakrie -- to jockey for influence in 
the current administration and to enhance their prospects for 
the 2014 election.  Given serious domestic political fallout 
resulting from the inquiry, the President is unwilling to use 
any political capital to press forward with potentially 
unpopular reforms or take on any controversial issues, 
including some elements of the Indonesia-United States 
Comprehensive Partnership.  END SUMMARY. 
 
BAKRIE FIRES THE FIRST SHOT 
 
¶2.  (C) The Bank Century scandal has its roots in Finance 
Minister Indrawati and Vice President Boediono's push for 
bureaucratic and economic reform.  A special parliamentary 
inquiry committee concluded that there was apparent 
malfeasance in the decision to bail out the Bank, and will 
likely refer the case to law enforcement authorities.  These 
reforms threaten the Suharto-era patronage norms embodied by 
wealthy businessman and Golkar party chair Aburizal Bakrie. 
Bakrie, a key fundraiser for both of President Yudhoyono's 
campaigns, was Coordinating Minister for the People's Welfare 
in Yudhoyono's last administration.  From that position 
Bakrie maneuvered to avoid blame for the Lapindo mudflow 
disaster and to gain an inside track to acquire a stake in 
Newmont's Batu Hijau mine.  Bakrie's companies have also 
reportedly evaded taxes and circumvented other government 
regulations. 
 
¶3.  (C) Bakrie has repeatedly clashed with reformers in 
Yudhoyono's government.  For example, in October 2008 Bakrie 
persuaded authorities to close Indonesia's stock market to 
halt the falling price of shares in his family's Bumi 
Resources.  Finance Minister Mulyani told Yudhoyono that she 
would resign if trading did not resume.  She eventually 
prevailed.  However, Bakrie, still bitter about this episode, 
aimed to take her and VP Boediono down through a Golkar-led 
parliamentary inquiry into the government's 2008 bailout of 
Bank Century.  Mulyani and 
Boediono, then BI governor, were key decision makers behind 
the bailout. 
 
YUDHOYONO FIRES BACK 
 
¶4.  (C) Bakrie's attacks on Yudhoyono's two most respected 
cabinet members and other actions have led the usually 
cautious President to respond.  Returning to the Lapindo 
incident, Yudhoyono's government has re-opened an 
investigation into the cause of the mudflow.  Most observers 
agree this was a direct attempt to rein in Bakrie. 
 
¶5.  (C) Yudhoyono's recent remarks that he would "clean up 
tax evaders" and discourage unhealthy relations between 
business and politics were aimed at Bakrie and his family 
business.  Yudhoyono's Democratic Party (PD) members have 
suggested the possibility of a cabinet reshuffle of Golkar 
and PKS ministers if these coalition partners continue to 
agree with the opposition that the Bank Century bailout was 
illegal and continue to press for Mulyani and Boediono's 
removal.  As Yudhoyono distances himself from Bakrie, this 
could cause investors lured by Bakrie's well-known access to 
the palace to lose confidence in his businesses. 
 
BAKRIE,S NEXT MOVE? 
 
¶6.  (C) Despite the attacks on Yudhoyono,s trusted advisors, 
Bakrie has reiterated that Golkar wants to participate in the 
ruling coalition until 2014.  His expressed desire to bring 
charges against Indrawati and Boediono to legal authorities 
demonstrates his desire to draw out the controversy and erode 
 
JAKARTA 00000256  002 OF 002 
 
 
Yudhoyono,s standing, however.  Since Bakrie became the head 
of Golkar several months ago, he has pursued this strategy 
with success, as Yudhoyono,s plunging poll figures show. 
 
GRIDLOCKED GOVERNMENT SLOWS PROGRESS ON REFORM, PARTNERSHIP 
 
¶7.  (C) President Yudhoyono started his second term with 
sixty percent of the vote and a seventy percent approval 
rating while his Democratic Party holds the largest share of 
parliamentary seats.  This strong mandate for reform has 
prompted a sharp defensive reaction from Bakrie and his 
allies who see an increasing threat to their traditional 
power.  The ongoing parliamentary inquiry, extensive media 
commentary and frequent but small street protests have kept 
the pressure on the Palace.  The issuance of the 
parliamentary faction opinions on February 23 placed added 
pressure on Yudhoyono,s fractious coalition Cabinet. 
 
¶8.  (C) This struggle has paralyzed Yudhoyono and his 
government.  Unwilling to risk alienating segments of the 
parliament, media, bureaucracy and civil society, Yudhoyono 
has slowed reforms.  He is also unwilling to cross any 
constituencies who oppose potentially controversial elements 
of the U.S.-Indonesia Comprehensive Partnership, such as 
expanded health cooperation.  Until he is satisfied that he 
has shored up his political position, Yudhoyono is unlikely 
to spend any political capital to move his reform agenda, or 
controversial aspects of U.S.-Indonesia relations, forward. 
HUME