Sacking Sri Mulyani could hit the economy

Ousting Finance Minister Sri Mulyani Indrawati Cabinet after the Bank Century bailout, as some speculation suggests may happen, could hit the economy, as international investors trust her leadership, analysts say.

Standard Chartered Bank senior economist Fauzi Ichsan said international investors have yet to pay attention to the Century Bank case as they still considered it a “local case”.

“But if the case could topple the finance minister or the Vice President, then it would draw their attention,” he said.

“Will it affect Indonesia? Maybe in the short term; but not in the long term, because it wouldn’t [necessarily] affect the [economic] fundamentals,” he argued in a forum held by Standard Chartered on Monday.

Fauzi pointed out that despite the negative impacts of the global economic crisis, Indonesia’s economy grew 4.3 percent last year, pointing to strong fundamentals. The economy is predicted to expand by 5.5 percent this year.

Mulyani and former Bank Indonesia governor Boediono, now Vice President, were called by the parliamentary inquiry committee into the Century case to discuss their roles in the bailout decision.

The bailout, costing an eventual total of Rp 6.76 trillion (US$716 million) to save the small bank, sparked controversies.

Mulyani — who has received praise for successfully reforming the previously corrupt tax office and customs and excise office — has repeatedly said she, in her capacity as the chairman of the Financial System Stability Committee, saved the collapsed bank to protect the financial sector from a systemic threat amidst the global financial crisis.

Some members of parliament believe that Mulyani may have violated an administrative regulation by failing to report bailout details to the ad interim president (former vice president Jusuf Kalla). Mulyani insisted during House questions that she had reported all her moves.

Anonymous sources at the Golkar Party have claimed there may be a political deal between Golkar chairman Aburizal Bakrie and President Susilo Bambang Yudhoyono to oust Mulyani to end the Century case.

But Yudhoyono, through his spokesman Julian Aldrin Pasha, has clearly denied this.

Bank Negara Indonesia chief economist A. Tony Prasetiantono said unseating Mulyani from her position might be “counter-productive” if she did not commit any legal violations. So far there is no substantiation of any such allegation.

Tony said there are three essential issues revolving around the bailout that need to be addressed.

“First, whether closing Century would have caused a systemic threat or not. Second, whether the bailout funds are state funds or ‘separated state funds’ [because the funds came from the Deposit Insurance Corporation, while initial capital of Rp 4 trillion came from the state budget, then expanded to Rp 18 trillion from premiums of bank depositors].

“[Lastly], the legality of the regulation-in-lieu-of-law [on the Financial System Safety Net], used as the legal basis for a temporary capital injection into Century.”

Furthermore, Tony was of the opinion that if a political deal between Aburizal and Yudhoyono did indeed materialize, then it would undermine the government’s credibility.

“Then if there are problems, the solution will be in form of ‘agreement’ or ‘political deal’.

“The government’s policies will not be credible, and this would create difficulties for the government if it needed to influence or convince the market,” he said.