BANK INDONESIA SCANDAL - OUSTING THE OLD

UNCLAS SECTION 01 OF 02 JAKARTA 000356 SIPDIS SENSITIVE SIPDIS DEPT FOR EAP/MTS AND EB/IFD/OMA TREASURY FOR IA-SETH SEARLS SINGAPORE FOR SUSAN BAKER COMMERCE FOR 4430-BERLINGUETTE DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN DEPARTMENT PASS EXIM BANK DOJ/OPDAT FOR JOHNSON/LEHMANN/ALEXANDRE DOJ/AFMLS FOR SAMUEL E.O. 12598: N/A TAGS: EFIN EINV ECON KCOR PGOV ID SUBJECT: BANK INDONESIA SCANDAL - OUSTING THE OLD ¶1. (SBU) Summary: The scandal involving Bank Indonesia (BI) senior officials paying "grease money" to the Parliament (DPR) to pass bank legislation is regarded by some insiders as politically motivated to prevent Burhannudin Abdullah from continuing in a second term as BI Governor. The Anti-Corruption Commission (KPK) is continuing the investigation of the case based on Supreme Audit Board (BPK) reports that exposed illegal payments from Bank Indonesia's Indonesian Banking Development Foundation between 2003 and 2004. These payments were made both to attorneys to settle Bank Indonesia Liquidity Assistance (BLBI) cases and to DPR members. This case is significant as the first KPK case to bring charges against former and current Parliamentarians. End Summary. The Investigation: Auditors and Anti-Corruption Commission Go after BI -------------- ¶2. (SBU) The KPK named BI governor Burhannuddin Abdullah along with BI Legal Affairs Director Oey Hoey Tiong and BI Surabaya office Director Rusli Simanjuntak as suspects in late January. Tiong and Simanjuntak were detained in mid-February and fifteen other BI officials are banned from international travel until further notice, according to media reports. The KPK alleged that BI officials paid Rp 31 billion ($3.4 million) in bribes to legislators and law enforcement officials in 2003 and 2004. According to the BPK, which reported to the KPK in September 2007, BI disbursed Rp 96.25 billion or $10.5 million ($7.5 million from the Indonesian Banking Development Foundation and $3 million from the BI budget) to lawmakers and law enforcers to resolve ongoing legal problems of BI officials involved in misuse of Bank Indonesia Liquidity Assistance (BLBI) funds and to pass banking legislation. Is He or Isn't He Dirty? -------------- ¶3. (SBU) Abdullah is no longer a candidate for a second term (he withdrew from the running after the allegations were made public) and President Yudhoyono has already named two nominees to the position (see septel). Some members of the Parliament saw KPK's action as politically motivated with the election of the new BI Governor just weeks way. Maruarar Sirait, a member of Parliament's Financial Affairs Commission (Commission XI),stated to the press, "We hope KPK's decision was taken after considering every relevant factor," adding that BI under Abdullah's leadership has achieved success in maintaining macro-economic and banking stability. "If the position of BI governor is disturbed for a short-sighted political aim, the national economy could be placed in danger," Sirait said. ¶4. (SBU) Another member of the Commission XI, Rizal Djalil, is concerned that the decision of the KPK could hurt BI's policies and tasks, and thus adversely affect the Indonesian economy. "BI's policies should be protected, as the central bank's position is very strategic in the national economy. Accordingly, BI should be protected from politically-tainted stunts," he said. BI Governor Abdullah was generally well regarded as a competent manager and policy-maker, though not always the best communicator. Among the universe of corrupt minister-level officials, Abdullah seems to be one of the least dirty ones. Other contacts however say that Abdullah "must be dirty" after five years as head of BI, and that the politically cautious KPK must have plenty of evidence against him to think it can win its case. Grease Money to the DPR: Everyone Does It -------------- ¶5. (SBU) It is common practice for government ministries and other interested parties pay "grease money" to Parliamentarians to amend or pass legislation. Government ministries often budget funds to push through legislation which they support. One of the oft-cited reasons for the three-year delay in the tax law amendments is that the new Director General for Tax refuses to pay the Parliament to pass it. Instead, the DPR has reportedly been pressuring the Indonesian Chamber of Commerce KADIN to pay for the amendments. Yunus Husein, Chairman of the Indonesian Financial Transaction JAKARTA 00000356 002 OF 002 Reports and Analysis Center (PPATK),Indonesia's Financial Intelligence Unit, published an editorial on February 18 acknowledging that "If Bank Indonesia had not expended the funds, the legislation would have remained unresolved or delayed at the House of Representatives." Husein also told the Embassy in a meeting on February 21 that this case is "very complicated" and used the Indonesian expression, as he did in his editorial, of "eating the fruit of a dilemma." He also said the KPK will also have to look carefully at the recipients of the bribe. Why Go After BI? -------------- ¶6. (SBU) None of the reports from contacts or the media note that BI officials bribed the DPR for personal enrichment or to secure a job, but rather to pass legislation concerning the banking sector. It is unclear why the BPK and KPK went after this BI case now. There are several theories. One is that the head of the BPK, Anwar Nasution (who was a BI Deputy Governor himself at the time of the alleged bribes to the DPR in 2003-2004) is aggressive in his role as Supreme Auditor and wants to clean house partly by trumpeting abuses in the media. Some observers have described him as a "blunt instrument" and a "tough Batak." A commercial banking contact said that Nasution sought to regain a Deputy Governor position for himself by discrediting the current lot. (Note: Nasution is a Harvard-trained economist and it is widely known that he has been unhappy as head of the BPK.) An expat consultant who has worked in Indonesia for more than a decade said this is normal practice to force out the head of a major agency who wanted to stay on. "Create a scandal, force an exit," this contact replied cynically. With inside candidates now somewhat tainted and a scandal engulfing BI, SBY was forced to nominate outsiders. Just Scratching the Surface -------------- ¶7. (SBU) The BI scandal is the first KPK case to bring charges against former and current Parliamentarians. In its first four years, the KPK did not investigate one case involving Parliament. While it is a positive development for the KPK - and AGO - to be investigating alleged corruption in Parliament, this case is just scratching the surface on Parliamentary corruption. The Parliamentarians named in this case are two of many other DPR members likely to have received bribes in this specific case, according to multiple sources. HUME