Indonesian leader backs $715 million bank bailout

By JULIA ZAPPEI

posted: 76 DAYS 17 HOURS AGO

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JAKARTA, Indonesia -Indonesia's newly installed vice president defended a $715 million bank bailout Wednesday, saying it had been vital to protecting the nation's financial system during the global economic crisis.

The capital injection to Bank Century late last year was "the right thing" to do, said Boediono, a former central bank governor who was elected vice president in July. Like many Indonesians, he uses only one name.

Lawmakers this week agreed to launch an inquiry into the bailout after the main audit agency alleged there had been irregularities. The criticism poses an additional headache to President Susilo Bambang Yudhoyono, who has recently been confronted by a major corruption scandal in law enforcement.

"We did the right thing, the necessary thing, and the result was good," Boediono told reporters in the capital, Jakarta. "We actually got through the crisis quite well compared to other countries."

Indonesia, suffered financial collapse just over a decade ago during the Asian economic crisis, has weathered the recent turmoil almost unscathed. In the first half of 2009 the economy grew 4.2 percent, boosted by steady domestic consumption, compared to 6.1 percent expansion a year earlier.

Unlike other governments, Indonesia did not need a broad stimulus package to prop up the economy. The local currency, the rupiah, and the stock market have been among the best performing in Asia this year.

Boediono said the bank's rescue avoided the domino effect seen in 1997-1998 when a financial meltdown forced millions into unemployment.

When the world's markets began reeling last year, Indonesia's Parliament approved 1.3 trillion rupiah ($140 million) to save the troubled Bank Century, but the bailout ballooned and the government ended up spending 6.76 trillion rupiah ($715 million).

A report by the Supreme Audit Agency released earlier this week said the decision by the Finance Minister and Boediono, who was the central bank governor at the time, to rescue such a relatively small market player had been based on "subjective judgment."

Boediono said allegations that bailout money had been used to fund Yudhoyono's re-election campaign and that bank shareholders committed fraud needed to be looked into.

"These are things that need to be cleared up and will be cleared up," he said. "I'm very confident that we will get through this."

Yudhoyono has dismissed as "cruel slander" charges from political opponents that bailout funds were channeled to help secure his landslide re-election.

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AP reporter Irwan Firdaus in Jakarta contributed to this article.

2009-11-25 10:25:25