Jakarta Rocked by Bank Scandal

AN Indonesian banking scandal set to rival those of the 1997-98 Asian financial crisis threatens to undermine the final days of Susilo Bambang Yudhoyono's first government.

The President's outgoing deputy, Jusuf Kalla, this week accused his successor, former central bank chief Boediono , of presiding over "dereliction" in the 6.7 trillion rupiah ($802.5million) bailout of Bank Century, a foundering middle-sized institution created in 2005 by the merger of three banks. The Supreme Audit Agency has responded quickly to parliamentary demands it examine claims the bailout followed lobbying from influential Bank Century shareholders and depositors, including some of Indonesia's wealthiest families and state-owned companies.

The initial Bank Century bailout estimate late last year was for only 2.27 trillion rupiah, but the amount eventually poured in by Bank Indonesia was almost triple that, with reports that massive withdrawals by key depositors were made even as the institution was being stabilised. According to parliamentary sources and local media, these depositors included the Sampoerna and Arifin Panigoro families, as well as state companies PT Jamsostek (the national insurance firm) and PT Timah (the national tin miner).

The first of the four Bank Century cash injections was made by Bank Indonesia on November 23 last year and the final one on July 21 this year. To make matters worse, the bailout decision was taken despite evidence of huge fraud at Bank Century, resulting in the November 26 arrest of its major shareholder, Robert Tantular. He is facing eight years' jail and a fine for embezzlement, but the $US1 billion ($1.2bn) thought to have embezzled has never been recovered and is believed to be in Hong Kong.

Excerpt from The Australian by Stephen Fitzpatrick, Jakarta correspondent