LEGISLATURE CALLS ON PRESIDENT TO TESTIFY RE

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 003326

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E.O. 12958: DECL: 12/05/2017
TAGS: PGOV EFIN KJUS KCOR ID
SUBJECT: LEGISLATURE CALLS ON PRESIDENT TO TESTIFY RE
BANKING SCANDAL

REF: A. JAKARTA 2648


B. JAKARTA 2229

Classified By: Pol/C Joseph Legend Novak, reasons 1.4(b-d).


1. (C) SUMMARY: Indonesia's Parliament (DPR) has moved to
summon President Yudhoyono to answer questions regarding a
complex financial case. Abuse of Central Bank liquidity
funds--issued to assist depositors at distressed
banks--caused billions of dollars in losses to the state.
The Attorney General created a team to reopen the
investigation into what happened in June, but has yet to
indict anyone. While the likelihood that SBY--who is not
accused of any corrupt activities himself--will personally
appear is small, the move indicates the desire of the DPR to
bolster its image on the anti-corruption front. END SUMMARY.

SBY CALLED ON THE CARPET


2. (C) DPR members unanimously agreed December 4 to summon
the President to Parliament (a process known as
"interpellation") to address the investigation into the Bank
Indonesia Liquidity Assistance (BLBI) scandal. (Note:
Interpellation is a Constitutionally-sanctioned demand that
the President appear before the DPR to answer questions. The
President's office has effectively been able to short-circuit
prior DPR demands that President Yudhoyono personally appear
in regard to UNSCR 1747 on Iran and the East Java mudflow,
however.) DPR members Ade Nasution and Dr. Harry Azhar Aziz
told us that the move is intended to press the GOI to move
the investigation forward and to spur the recovery of stolen
state funds.

NOTES ON A SCANDAL


3. (U) Bank Indonesia Liquidity Assistance (BLBI) provided
liquidity support for depositors at distressed banks
beginning in January 1998. Indonesia had around 240 banks
before the financial crisis of 1997-98 and now has 130. Many
banks failed, were nationalized or bailed out, or were forced
to merge. In some cases, bank owners took their deposits out
first, abused the funds, and fled the country. A handful of
these are on the AGO's "most corrupt" list. Eventually, bank
owners were required to sign a personal guarantee that they
would repay the funds. The GOI's Indonesian Bank
Restructuring Agency (IBRA) received many property assets as
repayment (plantations, buildings, factories, undeveloped
property),some of which later turned out to be overvalued.
The resultant losses to the state, both from abuse of
liquidity credits and overvalued assets of failed banks,
totaled in the billions of dollars.

AGO REOPENS INVESTIGATION


4. (U) In June, Attorney General Hendarman Supandji announced
that he was re-opening the BLBI matter (ref B). The AG
appointed a special team of 35 prosecutors to review the case
and determine whether any assets could be recovered or
criminal charges brought. The AGO has made a public show of
calling in major figures for questioning, including a former
Coordinating Minister for the Economy and the former head of
IBRA.


5. (C) Six months on, however, no indictments have been filed
and the investigation appears to have stalled. One
prosecutor noted that the AGO simply cannot locate the
documentary evidence it needs to prove criminal charges or
locate stolen assets. This contact suggested that much of
the documentation has been intentionally "lost" by
individuals seeking to hide their tracks. Several of those
involved in abuse of funds fled abroad years ago and trails
are cold. A senior economist and advisor to the President
said that the Council of Economic Advisors had recommended to
SBY that the BLBI cases no longer be pursued in order to

JAKARTA 00003326 002 OF 002


close the door on this unhappy and tumultuous period of
Indonesia's history. The State-Owned Asset Management
Company (PPA),IBRA's successor organization, continues to
divest thousands of properties which the GOI nationalized
during the financial crisis. Unfortunately, 80% of them did
not have free and clear legal title and PPA has been slowly
and painstakingly trying to clear them and find buyers.

TRYING TO SPUR ACTION


6. (C) The DPR's move indicates a desire to bolster the
body's image vis-a-vis corruption. SBY--who is only being
accused of not pressing the investigation enough and not of
any corruption himself--has made several speeches in recent
weeks emphasizing his commitment to the anti-corruption
campaign and promising to wash the "dirty dishes" left over
from past activities. The DPR, meanwhile, is consistently
viewed as a den of money politics itself. The concrete
impact of the interpellation effort, however, will be minimal
at best. The President won't show; the legislature knows
this and is content to score some political points.

HUME