Bank bailout furore shows limits of reform in Indonesia

Around the world, central bankers have been lauded for bailing out troubled banks and saving the global financial system. The uninspiring Ben Bernanke was even made Time magazine's person of the year.

But, in Indonesia, the $730m bailout of a small-ish lender called Bank Century in 2008 has become a millstone around the government's neck.

Despite a distinct lack of evidence, political opponents have hurled allegations of wrongdoing at President Susilo Bambang Yudhoyono and, in particular, his two reform-minded lieutenants, Vice President Boediono and Finance Minister Sri Mulyani Indrawati.

A lengthy, farcical parliamentary inquiry into the bailout failed to come up with any hard evidence of corruption. But it did prove to be a massive political distraction that has limited Yudhoyono's ability to push ahead with the reform agenda on which he was elected for a second term last summer. (For a fuller background piece, check out Aaron Connelly's blog)

Some political and business leaders hoped that the Bank Century furore would fade with the closing of the parliamentary inquiry. However, the Corruption Eradication Commission has taken up the Bank Century baton and it looks likely that the affair will continue to be a drag on the Yudhoyono government for some time to come.

But the Bank Century issue is less a cause than a sympton of the wider political problem that is holding up the vital drive to reduce the endemic corruption, rent-seeking and red tape.

Those threatened by the anti-corruption fight led by the likes of Sri Mulyani and Boediono are fighting back by labelling their accusers as the real "Koruptors".

As Ross McLeod of the Austrlian National University points out in a blog post on the East Asia Forum: "The innocent are wrongly branded as thieves; but the accusation is made by the real thieves, precisely in order to hide their own activities."

So eight months in to Yudhoyon's second and final term, which begun with a large popular mandate and high hopes, where does this leave the reform agenda? Not in a very good place, according to McLeod.

"Although the reformist Vice President and Minister of Finance now seem safe in their positions, it is difficult now to imagine how the second SBY administration can recover the momentum of reform, given the shabby manner in which the parties that comprise the ‘rainbow coalition’ cabinet continue to behave."