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Cablegate: Bank Indonesia Scandal - Ousting the Old

VZCZCXRO5650
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0356/01 0550758
ZNR UUUUU ZZH
R 240758Z FEB 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8067
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 1547
RUEHBJ/AMEMBASSY BEIJING 4735
RUEHBY/AMEMBASSY CANBERRA 2033
RUEHUL/AMEMBASSY SEOUL 4413
RUEAIIA/CIA WASHDC

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

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