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The visit of President Susilo Bambang Yudhoyono to Australia, five months into his second five-year term, provides an opportune moment to take stock of Indonesia’s progress over the last few years. Like Australia, Indonesia has performed remarkably well in the face of the global financial crisis. Its annual economic growth rate fell from about 6 percent to 4 percent, but has already accelerated again to well above 5 percent. Inflation is only about 3 percent, and the currency is strong. The budget deficit is small and under control, as is public debt.

A number of factors have contributed to this good performance. Indonesia is not heavily dependent on international demand for its products, nor is it greatly exposed to reckless big-name banks and other financial institutions in the United States and elsewhere.

It learned much from the Asian financial crisis in the late 1990s, when poor policy choices made the impact of the crisis far worse than it should have been. At that time, cuts in government spending amplified those by the private sector, and extremely loose monetary policy guaranteed a surge in inflation and collapse of the currency, in turn resulting in implosion of the banks. All this culminated in the resignation of President Suharto after more than three decades in power. By contrast, the impact of the global financial crisis peaked in Indonesia shortly after Yudhoyono had been returned to office in a landslide victory.

An interesting parallel between Indonesia and Australia is the extraordinarily rapid deterioration in each administration’s political comfort level. The Rudd government has seen an alarmingly sudden drop in public support, while Yudhoyono’s administration, too, has suffered an equally alarming decline of its authority within the legislature, resulting from the Bank Century scandal — the $730 million bailout of a small bank at the height of the crisis. Amid uproar in the legislature last week, a special committee of inquiry voted along party lines to recommend further investigation of the matter by the law-enforcement agencies.

This was simply political theater. The episode should be seen in the context of efforts to eradicate corruption. Specifically, it should be seen as just one element of a mounting reaction by those threatened by these efforts. To paraphrase one Jakarta commentator, politics turns logic on its head. The innocent are wrongly branded as thieves, but the accusation is made by the real thieves, precisely in order to hide their own activities.

Where is corruption to be found in Indonesia? Unfortunately, it infects the entire public sector, including the bureaucracy, law-enforcement agencies and the judiciary, not to mention the legislature itself. Endemic corruption is part of the Suharto legacy. As a consequence, anticorruption efforts can more often than not expect opposition rather than support from within these institutions.

One important anticorruption institution is the Supreme Audit Agency (BPK). Late last year the legislature appointed a former director general of the tax office, Hadi Purnomo, as one of its commissioners. This individual had earlier been removed from his tax office position by the incoming finance minister, Sri Mulyani Indrawati, who was determined to overcome deep-seated corruption in the tax office. Lawmakers are supposed to protect the interests of the general public, but it is hard to interpret Hadi’s appointment as anything other than a move to protect the interests of those in the public sector who have much to lose from the existence of a strong audit agency.

In similar vein, the National Police struck back at the Corruption Eradication Commission (KPK) after it began to act against high-ranking police officers, arresting two of the commissioners on trumped-up corruption charges. Public outrage forced the police to back down when the commission produced recordings of phone conversations that clearly pointed to conspiracy.

Lawmakers, many of them targets of graft investigations, have reacted by watering down the legislation that supports the KPK.

After three months the House special committee of inquiry found no evidence of corruption in relation to the Bank Century bailout. Indeed, the Financial System Stability Committee (KSSK) that decided in favor of the bailout seems to have followed the letter of a law passed by that same legislature just four years earlier — a law that set out the procedures to be followed when banks became insolvent.

Whether it was necessary to bail out the bank in order to prevent a sudden collapse of the country’s banking system — as occurred in 1998 — might be debated endlessly. But what is clear is that the law required the committee to exercise its professional judgment on this issue in precisely the way it did.

It is now difficult to imagine how the Yudhoyono administration can recover the momentum of reform, given the grubby manner in which the parties that comprise the coalition continue to behave.

Ross McLeod is an associate professor and editor of the Bulletin of Indonesian Economic Studies at the Australian National University.

East Asia Forum