CORRUPTION SCANDAL CONTINUES TO PERCOLATE

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 001560 SIPDIS DEPT FOR EAP, EAP/MTS, EAP/MLS, INL INL FOR SNYDER/BARCLAY DEPT FOR EEB/IFD/OMA DOJ/OPDAT FOR LEHMANN/ALEXANDRE/JOHNSON SINGAPORE FOR BAKER TREASURY FOR IA-BAUKOL DEPT PASS USTR FOR BWEISEL, KEHLERS NSC FOR E.PHU E.O. 12958: DECL: 08/15/2018 TAGS: PGOV KJUS KCOR ID SUBJECT: CORRUPTION SCANDAL CONTINUES TO PERCOLATE REF: A. JAKARTA 1484 ¶B. JAKARTA 865 ¶C. 07 JAKARTA 2953 Classified By: Pol/C Joseph L. Novak, reasons 1.4(b+d). ¶1. (C) SUMMARY: The Bank Indonesia (BI) corruption case continues to make news. Recent court testimony has implicated the father-in-law of President Yudhoyono's eldest son. In another tentacle of the case, the President's retention of two cabinet ministers despite accusations of corruption continues to draw flak. Meanwhile, the role of the Attorney General's Office (AGO) in failing to investigate the BI case has come under renewed criticism. President Yudhoyono has had a solid image as an anti-corruption campaigner, though with the widening of the BI scandal, that has taken a bit of a hit. END SUMMARY. A CASE THAT CONTINUES TO MAKE NEWS ¶2. (SBU) The Bank Indonesia corruption case continues to percolate. Asnar Ashari, a former staff member at the communications bureau of BI, Indonesia's central bank, testified in Anti-Corruption Court on August 11 that each disbursement of BI funds was approved by former governor, Aulia Pohon. Although several former BI governors have been implicated in the growing BI scandal, this recent testimony indicates that Aulia Pohon may have been more intimately involved in the illegal disbursements than previously thought. (Note: Pohon is the father-in-law of Agus Harimurti Yudhoyono, the eldest son of President Yudhoyono. Agus is a military officer.) ¶3. (SBU) Background: As reviewed in reftels, the BI corruption case involves the unlawful disbursement of Indonesian Banking Development Foundation (YPPI) funds to 52 former members of the national legislature (DPR) and five former BI officials in 2003. The money was given in exchange for resolving the BI liquidity support scandal, commonly known as "BLBI." The BLBI matter concerns emergency liquid credits extended by BI to commercial banks during the financial crisis, which began in 1997. Of the $16 billion BLBI loans issued since 1997, approximately a third turned bad. RETENTION OF MINISTERS DRAWS MORE FLAK ¶4. (SBU) As reported in reftels, the case has entangled two members of President Yudhoyono's Cabinet. In his testimony, Ashari confirmed the involvement of National Development Planning (BAPPENAS) State Minister Paskah Suzetta and Forestry Minister Malam Sambat Ka'ban (ref A) in the unlawful BI disbursements in 2003. (Note: The ministers are former DPR members, and are two of the 52 former DPR members mentioned above who have been implicated in the scandal.) After failing to appear for questioning at the Corruption Eradication Commission (KPK) on August 8, the Forestry Minister finally agreed to be questioned by the KPK about his involvement in the BI case. He is also implicated in a separate forestry-related corruption case. ¶5. (C) Ka'ban's initial failure to appear for questioning reaped the President more flak for not firing him and State Minister Paskah. One member of the DPR told Pol/C that "the President has to get rid of them (the ministers) or he will lose support." For his part, without directly defending the ministers, the President has said he will keep the ministers on pending the completion of a formal investigation of the JAKARTA 00001560 002 OF 002 two by the KPK. Some critics see SBY's "protection" of the two ministers as inconsistent given his dismissal (before formal charges related to corruption were made) of former cabinet members State Secretary Yusril Ihza Mahendra and Law/Human Rights Minister Hamid Awaluddin in 2007. ATTORNEY GENERAL'S OFFICE REMAINS UNDER SCRUTINY ¶6. (SBU) The case is also enveloping the Attorney General's Office, the law enforcement wing of the Yudhoyono administration. On August 12, the KPK announced that it was investigating at least two attorneys working in the Office. Testimony in other related corruption cases confirmed that officials at the AGO had received BI payouts. Moreover, on August 14, Salman Maryadi, the Director of Prosecution at the AGO, implicated himself in the investigation by denying that he received BLBI funds. He stated that he was ready to face KPK scrutiny. Previously, in March, the KPK had caught the lead BLBI investigator Urip Tri Gunawan accepting a USD $660,000 bribe (clearly made for closing the investigation). ¶7. (SBU) These two developments continue to undermine public trust in the ability of the AGO to investigate and prosecute corruption cases. Trying to counter this perception, Attorney General Hendarman Supanji has reiterated that he knew nothing of the scandal, supports the KPK investigation, and said the KPK could search AGO offices and question AGO officials. THE SCANDAL WIDENS ¶8. (C) The scandal is a media hit with TV, Internet sites, radio and the newspapers reporting each new revelation. With the step-by-step widening of the scandal, President Yudhoyono's well-honed image as an anti-corruption campaigner has taken a bit of a hit. No one thinks that the President himself is involved in the matter. But he is accused of failing to act regarding his own ministers and failing to get the Attorney General's Office on track to investigate the case. In addition, the parenthetical that a relative by marriage has been implicated does not look good. Down a bit in the polls already and heading into a presidential election year, Yudhoyono can little afford to not get ahead of the curve re: this case. HUME