Politics Go Sour in Indonesia

It is beginning to appear that Vice President Boediono, who was elected last July in a decisive vote along with President Susilo Bambang Yudhoyono, may be in more trouble than initially thought, not because of the Bank Century scandal but because of internal politicking and the hardball tactics of one of the country's richest men.

Increasingly, insiders say, the battle over the 2008 Bank Century bailout is coming down to a face-off between the president and Aburizal Bakrie, the wealthy mining and media tycoon who chairs the Golkar party. Both the president and Bakrie were sequestered with their political teams Wednesday afternoon.

The controversy over Boediono and his ally, internationally respected Finance Minister Sri Mulyani Indrawati, has been dragging on for months. Now, however, the current crisis is threatening the president's credentials as a political reformer and contributing to the growing perception that he is weak and indecisive. An ongoing investigation by a special committee of the House of Representatives has largely devolved into a political sideshow with most of the president's supposed political allies openly flouting his authority in a seeming bid for relative advantage.

At stake could be the shape of future refom in the country. The Century investigation has almost nothing to do with legal niceties and everything to do with political power. Bakrie's muscle flexing harkens back to the days of former strongman Suharto, whose government operated almost entirely in the shadows with little or no accountability. In recent days, political circles have buzzed with talk of a deal that would sacrifice Boediono or Sri Mulyani or both and also be acceptable to Bakrie. The president seems incapable of taking charge of the situation.

The dilemma has spooked some investors who are recommending a sell of Indonesian shares because of political tension and others turning negative as well on Southeast Asia's biggest economy, which rode through the global credit crunch relatively unscathed. However, in addition to the political problems, inflation is starting to set in as well at a time when the president's financial team is preoccupied with the scandal.

Component political parties in Yudhoyono's ruling coalition, particularly Golkar, are still after the vice president and Sri Mulyani, whom Yudhoyono has previously defended. Earlier this week, the president's Democratic Party again threatened a cabinet reshuffle in an attempt to bring coalition members, particularly the National Mandate Party, (PAN), the Islamist Prosperous Justice Party and Golkar, back onto the reservation.

Also this week, the parties issued their "preliminary"findings in the House investigation, which will continue until March. Despite the Democrats' urging restraint, most said the bailout was corrupt and illegal, a finding that even without any real evidence would pose a direct threat to Boediono and Sri Mulyani.

The two officials have said repeatedly that the bailout, which came at the height of the global economic crisis, was necessary to save the banking system from risk. Boediono was head of the central bank at the time and he and Sri Mulyani were the highest-ranking economic officials involved. Yudhoyono characteristically has dodged responsibility for the bailout even though, as president, he would have ultimate responsibility.

Sri Mulyani, then in charge of the Committee for Financial Sector Stability, and Boediono were accused of exceeding their authority and the amount of funds authorized by the legislature in saving the bank, whose biggest depositor was the onetime tobacco magnate Budi Sampoerna and his family. Sampoerna was an early supporter of Yudhoyono's first bid for president in 2004. The bailout saved his funds in the bank, but the House committee has not seen fit to call him to testify.

The bank itself collapsed due to internal fraud and several individuals have gone to jail over the scandal and others are on the run outside the country.

Sri Mulyani and Boediono faced down the hostile legislative committee in January, saying they had been forced to save the bank to stave off collapse of the entire financial system. At that time, it appeared that the two had faced down the opposition.

Now, however, the game is coming down to Bakrie versus Yudhoyono. On Monday, the president urged police to aggressively pursue tax evaders, a move that was seen as taking direct aim at several Bakrie mining companies who are under investigation on tax charges. A Jakarta court ruled against one of the companies Tuesday. Sri Mulyani, a longstanding Bakrie foe, oversees tax collections.

While there is no bad blood between Boediono and Bakrie, Sri Mulyani has said that the entire Bank Century investigation was cooked up by the Golkar Party to get rid of her on Bakrie's behalf. Boediono may be collateral damage.

Sources close to the two beleaguered officials say the game has been complicated by the unwillingness of Sri Mulyani and Boediono to break ranks. The two are determined to face the crisis together, at least so far.

One source said: "Bakrie believes SBY doesn't have the guts to face him down"over the scandal and that eventually the tycoon thinks he will gain various advantages from the president by pressing the political advantage in the House. On Wednesday Bakrie very publicly visited the Golkar offices at the House for a meeting with party leaders.

Also coming into play now is Hatta Rajasa, the former state secretary and head of the moderate Islamist PAN party. Hatta, who was once thought to be slated for the vice presidency, took over in October as coordinating minister for the economy despite having no economic credentials. He is one of Yudhoyono's most trusted political aides and is close to his family.

The Jakarta Post reported Tuesday that Boediono is in danger of being pushed aside by Hatta over issues related to electricity and gas management. Hatta, the Post reported, is seeking a presidential decree to give the government direct involvement in helping out the 50 cash-strapped and politically well-connected independent power producers. Boediono reportedly is insisting that they resolve their problems with the state electricity company, PLN, instead of seeking government aid. Speculation has emerged that several of the producers are seeking to pass off their losses and inefficiencies to PLN by demanding higher rates for their electricity.

The Post quoted Thiamin Anal Matagalpa of the University of Indonesia, as saying: "There are two dominant groups in the cabinet. One that belongs to Hatta and the other to Boediono.”

The Post also reported, quoting a source, that "Since the presidential election, Boediono group's dominance has been pushed aside by that of Hatta. The public needs to watch whether Hatta manages to prevent Boediono from having any authority at all."

While an angry aide to Boediono privately denied any rift with Hatta, other sources believe Hatta may be eyeing the vice presidential post for himself, aided by family connections and parties in the legislature who may be seeking Boediono's impeachment or forced resignation.

Everything in Indonesian politics at present is complicated by the looming presence of Bakrie, the powerful head of the Bakrie group of companies, which own the country's biggest coal mining operation among a plethora of other interests from real estate to publishing. Bakrie's companies have been saved from financial disaster repeatedly by government intervention through the award of lucrative contracts or by government refusal to intervene in such matters as a disastrous gas well blowout that has turned into the country's biggest man-made environmental disaster.

Bakrie, having ousted former Vice President Jusuf Kalla as head of Golkar after the party's disastrous showing in the 2009 national elections, maneuvered it out of the opposition and back into the government just in time for the new cabinet to be formed, which netted Golkar three positions. Bakrie, Sri Mulyani's fiercest opponent after she blocked government aid to his companies during the credit meltdown in 2008, made Golkar into a force in the legislative investigation into the Bank Century matter. Now it appears he is backing Hatta for the vice presidency at the same time some Jakarta-based political analysts say he may be moving steadily to take Golkar into the opposition if he doesn't get his way.