Indonesia’s parliament on Wednesday ( March 04, 2010) voted for a criminal investigation of the finance minister and vice president over their decision to rescue a small bank, highlighting a bitter political struggle over reform. However, President Susilo Bambang Yudhoyono’s top
reformers, Finance Minister Sri Mulyani Indrawati and Vice President Boediono, are expected to keep their jobs, analysts said.

Here are some of the implications of the vote:

Criminal investigation

The president cannot stop a criminal investigation of either Indrawati or Boediono, and all three may decide it would be the best course of action in order to clear the two technocrats of any wrongdoing. Yudhoyono, Indrawati and Boediono have all denied any wrongdoing, saying the bailout of Bank Century was necessary to avert a financial crisis and panic among depositors at the height of the 2008 global credit crunch.

But one consequence of a criminal investigation is that it would further distract Indrawati and Boediono from their jobs.

Coalition may unravel

Don’t expect an immediate disintegration of the coalition, but given the deep rift between Yudhoyono’s Democrat Party, the largest member, and its
two biggest partners — the Golkar Party and Prosperous Justice Party (PKS) — a split looks possible.

Aburizal Bakrie, the tycoon who heads Golkar, epitomises the Suharto-era way of doing business and politics, and like many of the old guard is threatened by reforms. However, Golkar also has several younger generation members who recognise the need for reform so a coalition split could lead to strains within Golkar.

The Islamist PKS typically takes a tough line on corruption, and favours protectionist policies and curbing social freedoms.

Cabinet reshuffle

A change in the coalition might prompt a cabinet reshuffle. The Democrats have already tried to reach out to opposition parties PDI-P and Gerindra. But neither party has reform credentials, so their inclusion could impede reform.

Policy implications

If the coalition unravels, Yudhoyono could find it hard to push ahead with some policies and reforms. It is now very unlikely his government will go ahead with raising fuel and electricity prices, moves which lack popular support but which are important if Indonesia is to cut its huge subsidy bill and foster more efficient energy use.

Other areas which could be affected are in the labour market, where changes to the law are needed to give firms more flexibility in hiring and firing, and for land acquisition, allowing the state to acquire land for infrastructure.

Longer-term impact on decision-making

The Bank Century investigation and parliamentary hearings will further deter state officials from making tough decisions, for example in
times of crisis, that could later be used as evidence of wrongdoing. 

– Reuters –