Sri Mulyani Appointment Could Be a Blow to Antigraft Campaign

Jakarta Globe, Sara Webb, May 05, 2010

There are fears that Sri Mulyani Indrawati's departure as finance minister could be a major blow to a crackdown on graft and tax evasion. (EPA Photo)

Indonesian Finance Minister Sri Mulyani Indrawati, a key reformer in Southeast Asia’s biggest economy, is leaving office in what could be a major blow to a crackdown on graft and tax evasion.

Indrawati, 47, was named a managing director of the World Bank Group, a sign of the growing clout of emerging economies.

But the move also reflects increasing pressure on her at home from politicians opposed to her clean-up campaign.

“It’s a good move for her, but not good for Indonesia,” said Nick Cashmore, head of CLSA in Indonesia.

“She’s leaving earlier than expected, not doing the full five years. It shows that all these undercurrents are gathering pace.”

President Susilo Bambang Yudhoyono has congratulated Indrawati on the move, indicating he is willing to let her go, but investors will be watching who he appoints as her replacement for a signal on where the reform programme is headed.

Chief economic minister Hatta Rajasa will temporarily take charge of the finance portfolio until Indrawati’s replacement is appointed, presidential spokesman Julian Pasha told Reuters on Wednesday. Indrawati is to take up the World Bank post on June 1.

Rajasa is better known for his political skills, unlike Indrawati, who has a doctorate in economics and was an executive director at the International Monetary Fund before joining government.

Investors have been big buyers of Indonesian assets in the past 18 months, largely attracted by its pace of reform and liberalisation and the prospect of a surge in demand for its vast natural resources as the global economy recovers.

Local financial markets fell after the announcement of Indrawati’s move, but analysts said the weakening in the rupiah to 9,090 per dollar from 9,030 and a 3 percent drop in the stock market reflected broader investor concerns about emerging markets and risk related to the euro zone.

“The market will definitely react negatively to her departure,” said Destry Damayanti, an economist at Mandiri Sekuritas in Jakarta.

“Hopefully it is a short-lived one, but it all depends on who replaces her. That is the main concern for now, her replacement. What is needed is someone who is a professional, someone who is not politically biased.”

Likely candidates include: Anggito Abimanyu, the head of the ministry’s Fiscal Policy Agency; Chatib Basri, an academic and special adviser to the finance minister; Raden Pardede, an economist and former head of the state asset management company; and Agus Martowardojo, president director of Indonesia’s largest lendor Bank Mandiri.

The change at the finance ministry comes at a time when the country is still without a governor for Bank Indonesia, the central bank. Darmin Nasution, the senior deputy governor, has been acting governor since mid-2009.

“With Sri Mulyani’s strong and credible reform credentials, her departure is likely to be seen negatively by the market, not to mention that Indonesia has not had a BI Governor in almost a year,” Citibank economist Johanna Chua said in a research note.

“Thus, vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms. Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”

Indrawati and Vice President Boediono, who was earlier the central bank governor, were regarded as Yudhoyono’s top reformers, taking a tough public stance against corrupt politicians, officials and businessmen in a country that ranks among the most corrupt in the world.

Their reforms, for example in the tax and customs offices, led to improvements in revenue collection but much more remains to be done to clean up the civil service, including the police and judiciary.

Indrawati raised salaries at revenue departments, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records.

She has sent sent investigators from the anti-corruption commission on surprise raids, including to the customs department, to check whether officials had cash stashed away.

However, tax evasion remains a serious problem. In a country with a population of about 240 million, there are only 16 million registered tax payers.

Reuters

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Cheating at tax office raises concern

Rendi A. Witular, The Jakarta Post, Jakarta | Wed, 05/05/2010 9:50 AM

A series of recently uncovered tax crimes in several major cities has highlighted at least three methods of cheating on taxes, most of which have been regularly used for at least five years.

According to a preliminary investigation at the tax office, the mostdevastating method is the engineering of fictitious refund claims from value-added tax.

This method is to make fictitious transactions between firms to create the impression that one of them has paid an excessive amount of tax to the government. Through loopholes in the tax system, the firm then files a claim in the form of a tax refund.

Finance Minister Sri Mulyani Indrawati on Monday said this practice was employed by a North Sumatra business group she identifed by the initials PHS. The head of the group is believed to have fled the country after embezzling Rp 300 billion (US$33 million).

Tax officials say fictitious refund claims have been used since a decade ago with no slight effort seen to plug loopholes in the system that allow the crime to continue.

Each year, the tax office says it pays around Rp 30 trillion ($3.3 billion) in refunds to taxpayers, mostly without proper verification.

“It’s been an issue for years,” Directorate General of Taxation’s head of expert staff for supervision Wahyu Tumakaka said on Tuesday.

“There have been numerous internal discussions about the need to change the refund system but no progress has ever materialized.”

Apart from fictitious refunds, another major method to evade taxes includes abusing the “sunset” policy applied in 2008. Under the policy, taxpayers are exempted from paying penalties should they agree to honestly disclose hidden assets and income.

Taxpayers ended up using the policy to launder illicit funds or to commit future tax crimes by inflating the value of their assets and income. A taxpayer can also be employed by other parties to claim their assets or funds, which are retrieved from illicit sources, for laundering.

“It was a one-time policy. However, it was used widely as a tool for money laundering,” legislator Mukhamad Misbakhun said before being arrested by police on April 25 for allegedly embezzling funds from Bank Century, now renamed Bank Mutiara. Misbakhun is a former tax official familiar with the criminal methods at the tax office.

A review by the tax office of its success rate of the sunset policy is still ongoing.

Another tax evasion method, widely preferred by low-ranking tax officials due to its unsophisticated nature, involves creating a fictitious tax invoice and tax payment receipt for transactions regarding property and land.

“This method is popular in regions,” suspended West Java tax official Andri Hardukadi said recently.

Police have recently uncovered a syndicate using this method to embezzle potential tax revenue worth more than Rp 300 billion in Surabaya, East Java.

Such cases have also occurred in Bandung, West Java, in 2007.

“I believe tax officials in West Java still employ the very same methods used in Surabaya as we speak,” Andri said during an interview at Bandung’s Kebonwaru Penitentiary.

Andri was arrested in April last year by the tax office’s internal supervision division for alleged involvement in making fictitious tax invoices and receipts.

The division found more than 100 bundles of taxpayer documents stashed in Andri’s van, house and car rental firm.

The documents were related to taxpayers’ property and land transactions, sunset policy, income tax, and value added tax refunds.

“I took the documents out of the office to work on at home. I did not use them to commit tax crimes,” Andri said.

Under the existing regulations, taxpayer documents are highly classified and can only be used inside the tax office.

Sri Mulyani Named Managing Director at World Bank

Jakarta Globe, Sandrine Rastello, May 05, 2010

Minister of finance, Sri Mulyani to be questioned by the Corruption Eradication Commission (JG Photo/Safir Makki)

Indonesia’s Finance Minister Sri Mulyani Indrawati, who has been a candidate to head her nation’s central bank, was selected to be a top adviser to World Bank President Robert Zoellick.

Sri Mulyani will start June 1 as one of the Washington- based bank’s three managing directors, the highest rank under Zoellick. She “brings a unique set of skills and experience to the World Bank Group, from the vantage point of an advancing middle-income country that still faces significant challenges of poverty,” Zoellick said in an e-mailed statement.

The selection highlights the rising global role of Indonesia, the fourth most-populous nation and a member of the Group of 20 emerging and developed countries. It may also affect Indonesia’s economic leadership, as Sri Mulyani was one of two candidates proposed last June to head Bank Indonesia, an appointment stymied by a parliamentary probe led by factions within the governing coalition and members of the opposition.

Sri Mulyani, 47, will replace Juan Jose Daboub, who will complete his four-year term June 30, overseeing 74 nations in Latin America, the Caribbean, East Asia and the Pacific, the Middle East and North Africa, the bank said. Daboub is a former El Salvador finance minister.

The last managing director that Zoellick appointed was Ngozi Okonjo-Iweala, a former Nigerian finance and foreign minister, in October 2007. The third managing director, Graeme Wheeler, said in January that he will leave the institution by the end of next month. Wheeler worked at the New Zealand Treasury before joining the Washington-based development bank.

Bloomberg

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Batam Prosecutor Pulled After Failing to Drop Case

Jakarta Globe, Heru Andriyanto, May 04, 2010

The chief prosecutor in Batam has been removed from his post after he refused to abandon a case investigating alleged graft in the local government, although the Attorney General’s Office insisted on Tuesday that it was merely a routine transfer.

Prosecutor Tatang Sutarna said in a telephone interview that his office had been investigating the alleged misappropriation of about Rp 4.5 billion ($500,000) from the Batam city budget.

According to a preliminary investigation by prosecutors, the funds had been allocated for places of worship and orphanages from Rp 23 billion intended for social assistance programs. But the money never reached the recipients despite receipts presented by city officials.

Prosecutors suspected corruption was involved in the case and began a formal investigation, at which time the Batam administration responded by sending an official request for prosecutors to halt the probe.

Tatang refused to comply with the request, citing that the investigation had already been upgraded, but on Monday received notice that he was being transferred to a new post at the AGO, which he declined to elaborate on.

“The decree for my removal was issued after I refused a request from the Batam city government to drop the corruption case,” Tatang said.

“The case will continue until my replacement formally takes over my job. After that, it’s up to my successor to decide to continue with it. But if he follows procedures, he too must continue with the investigation.”

Deputy Attorney General Darmono denied suggestions that Tatang’s transfer had been based on his refusal to drop the case.

“We routinely rotate our prosecutors,” he said. “The reports [linking the removal with the case] are not valid. Instead, the AGO is encouraging the completion of the case.”

The transfer was also not a demotion, because Tatang would still retain his chief prosecutor position in his new posting, Darmono added, although declining to say where Tatang would next be posted.

In a similar case several years ago, a senior prosecutor with the Jakarta prosecutors’ office, Faried Haryanto, was sidelined after he refused to drop a corruption case related to the sale of a sugar factory in Gorontalo province in Sulawesi by the now-defunct National Banking Restructuring Board (BPPN). The case was eventually abandoned by the AGO.

Prosecutors Seek 3 Years for BI Bribery Case Suspects

Jakarta Globe, Nivell Rayda, May 05, 2010

Former Golkar lawmaker Hamka Yandhu at the Anti-Corruption Court on Tuesday where he is on trial for bribery. (JG Photo/Afriadi Hikmal)|

Prosecutors at the Anti-Corruption Court on Tuesday demanded prison terms of three years each for one sitting and one former member of the House of Representatives for their roles in a Rp 24 billion ($2.7 million) bribery case.

Former Golkar Party lawmaker Hamka Yandhu and sitting United Development Party (PPP) legislator Endin Soefihara are accused of receiving Rp 7.3 billion and Rp 2 billion respectively in exchange for voting for economist Miranda Goeltom as Bank Indonesia senior deputy governor in 2004.

The remainder of the money was allegedly channeled to two other defendants, who are being tried separately. They are sitting Indonesian Democratic Party of Struggle (PDI-P) lawmaker Dudhie Makmun Murod and former lawmaker Udju Djuhaeri, from the now defunct Police and Military faction.

“The defendant has damaged the public’s trust in the House of Representatives and betrayed the mandate given as a representative of the people,” lead prosecutor Sarjono Turin said in making the sentencing demand for Hamka. The same argument was used by prosecutor Triyono for Endin.

The three-year sentences are short of the five years the suspects could face under the law, with prosecutors citing the return of the money and the two defendants’ admission of guilt as mitigating circumstances.

Prosecutors also sought Rp 150 million in fines for the suspects or an additional six months in prison.

Hamka has said he channeled money to other Golkar politicians on the instruction of former National Development Planning Minister Paskah Suzetta, who at the time was deputy chairman of the House’s financial commission. “It was Paskah who instructed me to pick up the traveler’s checks from Arie,” he said.

Hamka was referring to Arie Malangjudo, also known as Ahmad Hakim Safari, an aide to businesswoman Nunun Nurbaeti Daradjatun and reportedly a close friend of Miranda’s.

Paskah has denied ever receiving the money, saying that “Hamka acted alone and without my consent or knowledge.”

At his trial on Tuesday, Dudhie repeated his claim that he was instructed by senior PDI-P member Panda Nababan to pick up the checks and distribute them to fellow party lawmakers.

Amir Karyatin, Dudhie’s lawyer, asked the court to instruct the Corruption Eradication Commission (KPK) to arrest Miranda, Nunun and other lawmakers who allegedly received money. “If it doesn’t arrest those who received the bribe money, the KPK will upset the sense of equality before the law,” Amir said.

The KPK believes that 39 of the 41 lawmakers who voted for Miranda received bribe money.

Hamka and Endin are scheduled to present their final arguments when the trial resumes next Tuesday, the same day on which a verdict is expected for Dudhie and Udju.

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SBY Fires At Fresh Targets in Graft War

Jakarta Globe, Camelia Pasandaran, May 05, 2010

President Susilo Bambang Yudhoyono has hit out at government officials, including the police, for charging businesses and investors “illegal fees.” (Bloomberg Photo/Ian Waldie)

Politicians should quit interfering with police and prosecutors, and regional governments must stop charging businesses and investors “illegal fees,” President Susilo Bambang Yudhoyono warned on Tuesday as he broadened the scope of antigraft offensive.

Saying he had received more than three million text messages and letters from people demanding action on graft, he said he felt called upon to act personally. “They’ve met a dead end and then can only report it to the president and the first lady,” he said.

Speaking at the start of a cabinet meeting on law enforcement, he dwelt first on politics. “We need to prevent political intervention in law enforcement. I call on politicians in this country, both in the executive and legislative branches, to respect the authority and independence of law enforcement.”

Interference undermined the rule of law through conflicts of interest that led to criminal behavior and corruption, he said.

He then took aim at fees that regional governments charge through bylaws and other means aimed at extracting money from investors. “I have received complaints from investors, both foreign and local,” Yudhoyono said.

“Because of illegal fees, overhead costs are too high. Later, these fees are counted as operational costs and that makes products and services more expensive. The people suffer from this.”

Investors have long complained that decentralization has seen regional governments charging hefty administrative fees and other levies on businesses counter to central government policies.

The president cited Home Affairs Ministry data showing that over 1,000 regional bylaws related to fees have been annulled in recent years. Home Affairs Minister Gamawan Fauzi promised to force district heads and governors to comply. “One-stop shop” issuing of permits and licenses by provincial governments would help end bogus fees, he said.

In his comments on political meddling in law enforcement, Yudhoyono said “money politics” was at the root of wrong doing. “The key is for politicians to stay away from the legal field and law enforcers from politics,” he said.

While he named no names, his remarks evoked recent Prosperous Justice Party (PKS) statements that it would defend North Sumatra Governor Syamsul Arifin, who refused to step down last month despite being charged with embezzlement.

In addition, Democratic Party lawmaker Daday Hudaya last month called on investigators to suspend a probe into a Papua district head who has been linked to a Rp 49 billion ($54 million) graft case, leading to charges that the president’s own party was acting on behalf of corporate interests.

PKS lawmaker Fachry Hamzah insisted the House never intervened in law enforcement. “[But] criticizing the government and law enforcement is part of a lawmaker’s duties. We’re being paid to speak out,” Fachry said, adding that intervening in a legal process is the sole prerogative of the executive branch.

Asked if there was clear evidence of politicians meddling in legal matters, Minister of Justice and Human Rights Patrialis Akbar declined comment. “These remarks were only to remind us,” he said. “Whether there is evidence, you journalists know better.”

House to recommend stopping tax office personnel`s remunerations

Antara News, Tuesday, May 4, 2010 20:08 WIB

Surabaya, East Java (ANTARA News) - The House of Representatives (DPR) Working Committee on Tax Affairs has decided to recommend the discontinuation of the remunerations so far being enjoyed by tax office personnel, a spokesman said.

"We have come to the conclusion that the payment of remunerations to tax office personnel must be stopped. This decision is final although we are still working on the matter," Abasanul Kosasih, deputy chairman of the House Commission XI on financial affairs, said here on Tuesday.

He said tax office personnel did not deserve the remunerations because many of them prove to be involved in tax mafia cases.

"The remunerations were intended as a reward for the tax office personnel`s professionalism. But it has now turned out tax mafia and corruption cases still continue to take place," Kosasih said on the sidelines of a hearing between Commission XI and members of the Directorate General of Taxation`s East Java office.

Kosasih said it was useless for the government to provide remunerations for tax officials because they proved to have such a bad mentality and to have behaved in such deplorable ways that corruption and tax crimes had continued to occur.

Commission XI had formed a working committee on tax affairs to deal with tax mafia cases at the directorate general of taxation.

"The working committee has the right to make recommendations to the finance minister, including recommendations on sanctions and reprimands. The working committee is the highest forum of Commission XJ," Kosasih said.

KPK arrests judge briber

The Jakarta Post, Jakarta | Tue, 05/04/2010 7:29 PM

The Corruption Eradication Commission (KPK) arrested on Tuesday DL Sitorus after declaring him a suspect for allegedly bribing a State Administrative Court (PTUN) judge.

In April, DL Sitorus lawyer Adner Sirait was caught red handed to have bribed judge Ibrahim as part of efforts to help Sitorus win his land dispute at Ibrahim's court, kompas.com.

Sitorus, the owner of PT Sabar Ganda, was detained in the National Police detention center.

Sitorus refused to comment on his arrest.

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Law talk

The Jakarta Post, Antara | Tue, 05/04/2010 1:38 PM

President Susilo Bambang Yudhoyono (right) speaks with (from left) National Police chief Gen. Bambang Hendarso Danuri, Attorney General Hendarman Supandji, Justice and Human Rights Minister Patrialis Akbar and Supreme Court chief Harifin A. Tumpa after opening a consultation and coordination meeting on legal affairs at the State Palace in Jakarta on Tuesday morning. Antara/Widodo S. Jusuf

Rattled’ Indonesia Central Bank May Hurt Confidence

Jakarta Globe, May 04, 2010

Indonesia’s central bank has been “rattled” by a leadership vacuum and corruption charges against former officials, threatening investor confidence in Southeast Asia’s largest economy, a former governor said.

President Susilo Bambang Yudhoyono has left the Bank Indonesia chief’s position vacant for almost a year since he picked the last governor, Boediono, to be his running mate in the 2009 presidential election. In 2008, Boediono’s predecessor, Burhanuddin Abdullah was found guilty by the country’s anti- corruption court of illegally transferring funds to Indonesian lawmakers. Abdullah denied any wrongdoing.

“People need to see a governor who is there,” Adrianus Mooy, 74, who was governor of Bank Indonesia from 1988 to 1993, said in an interview on April 30. “People want to see the governor’s hands there manage the central bank on a daily basis. But we don’t have any now. It’s like a big puzzle for us.”

Yudhoyono, 60, became the first Indonesian leader to win a second term in office since the dictator, Suharto, was ousted in 1998. While the political stability has lured investors and helped the rupiah to surge more than 10 percent since the president’s July re-election, that momentum may now be at risk as he dithers over appointing a central bank governor.

Indonesia’s central bank cut borrowing costs three times after Boediono resigned and has held the benchmark unchanged at 6.5 percent since August, even as other Asian countries begin to raise interest rates amid a global recovery.

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Exports rebound more than 50% in first quarter

Aditya Suharmoko, The Jakarta Post, Jakarta | Tue, 05/04/2010 10:50 AM

Exports, expected to lead economic growth this year along with investment, rose more than 50 percent in the first quarter, says the latest data from the Central Statistics Agency (BPS).

JP/IRMA

Between January and March, exports reached US$35.4 billion, a 53.7 percent rise from the same period in 2009 due to improving global economic conditions, BPS reported Monday.

The government expects exports to expand by 15 percent this year.

In the January-March period 2009 exports declined 32.1 percent due to the global economic downturn on a year-on-year basis — while in the January-March period 2008 exports rose 31.43 percent, according to BPS.

Export of non-oil-and-gas products in the first quarter this year rose 46.7 percent to $28.9 billion from the same period in 2009, said BPS. Exports of mining and other products rose 96.1 percent, while export of industrial products rose 37.5 percent and agriculture products 15.2 percent.

Taking March data only, exports rose 46.6 percent from the same month a year earlier. On a month-to-month basis, exports grew by 13.1 percent to $12.6 billion from the level in February.

Exports of non-oil-and-gas products in March rose 18.4 percent from February to $10.7 billion.

Finance Minister Sri Mulyani Indrawati said Indonesia’s economy could expand more than 5.8 percent on stronger exports and investment this year.

On Sunday the Investment Coordinating Board announced foreign investment in the first quarter this year rose 42 percent from a year earlier to Rp 35.4 trillion ($3.93 billion). But domestic investment dropped 23 percent to Rp 6.7 trillion.

BPS also announced in the first quarter this year that import growth showed a significant movement as domestic demand improved. Between January and March import growth reached 57.3 percent to $30 billion from the same period in 2009. Import of non-oil-and-gas products reached $23.8 billion, a 57.3 percent rise from the January-March period last year. Indonesia mostly imported goods from China ($4.1 billion or 17.4 percent of total market share), Japan ($3.6 billion or 15 percent market share) and Singapore ($2.5 billion or 10.6 percent), BPS said.

Import of consumer goods showed the most significant increase of 63.4 percent, while imports of raw materials rose 62.3 percent and capital goods 39.7 percent.

Regional cases may unravel mafia ring

Rendi A. Witular and Aditya Suharmoko, The Jakarta Post, Bandung | Tue, 05/04/2010 9:28 AM

A string of exposed tax crimes in several regions may be linked to a tax-dodging syndicate jointly run by high-ranking tax officials currently holding strategic posts, retired tax officials, businessmen and tax consultants.

Investigations by the tax office into separate cases in Jakarta, Bandung in West Java, Surabaya in East Java, and Medan in North Sumatra may suggest an existence of an organized network operating a similar pattern of tax crimes by taking advantage of loopholes in the system at the tax office headquarters.

The loopholes have allowed the syndicate, which is believed to have been in business for at least five years, to dodge tax payments and claim fictitious tax returns.

“I believe the string of tax crimes in several cities may not be isolated incidents,” said chairman of the tax and customs supervision commission Anwar Suprijadi recently.

“There are loopholes, maybe by design, in the tax system that should be closed immediately,” said Anwar.

The former reform-minded customs and excise chief also said he could not dismiss the possible role of high-ranking tax officials, retired tax officials, tax consultants, and businessmen in helping active officials dodge tax.

“We are monitoring the investigation into the cases to ensure the big shots are also netted, not just the small ones”.

Finance Minister Sri Mulyani Indrawati confirmed Monday systematic tax plundering involving a “tax mafia” in claiming for fictitious tax returns of value-added tax (VAT).

She said the cases in Medan, Jakarta, Bandung and Surabaya might be related.

“An investigation is currently underway into tax officials, including those at the highest level,” she said.

Suspended tax official Andri Hardukadi, now facing trial in Bandung, West Java, for allegedly stealing tax documents, said it was impossible for tax officials to “play” alone in tax crime without dragging higher-ranking officials at the strategic level.

“The methods are the same anywhere. It’s a syndicate involving not only senior tax officials but also tax consultants, and notaries,” said Andri in a recent interview at Bandung’s Kebon Waru penitentiary.

Andri was apprehended in April last year by the tax office’s internal supervision for allegedly being involved in making fictitious tax invoices.

However, it was not until March the case found its way to trial, with the police and prosecutors charging Andri merely with stealing tax documents.

“A case was made against me because [the rival syndicate] accused me of being the operator of a network linked to the ‘previous regime’,” said Andri.

Andri refused to specify the regime, but sources at the tax office said Andri was known to be part of Madura-connected syndicate largely led by several high-ranking active and retired officials from Madura Island, East Java.

Andri said he ended up at trial as collateral damage in a turf war between syndicates at the tax office.

“I am not part of any syndicate. And I’m not Hadi Purnomo’s [the former tax chief] guy,”

“I’m trying to prevent graft at the Bandung tax office. But my efforts eventually disturbed the interests of a rival syndicate,” said Andri, adding that loyalists of tax chief Tjiptardjo were behind his trial.

Tax officials are currently divided into three groups; those of Hadi‘s (chairman of the Supreme Audit Agency), those of Tjiptardjo’s, and those who are neutral.

Corruption at the tax office remains deep-rooted as most of its top officials are already tainted with decades of graft.

Tax revenue accounts for around 70 percent of state budget revenue.

Revision endorsed despite lawmakers’ spat over Sri Mulyani

Aditya Suharmoko and Hans David, The Jakarta Post, Jakarta | Tue, 05/04/2010 9:14 AM

The House of Representatives has endorsed the 2010 state budget revision with crucial adjustments to accelerate the economy, despite tensions raised by lawmakers opposing Finance Minister Sri Mulyani Indrawati.

In the budget revision, state expenditure has been increased to Rp 1,126.1 trillion (US$125 billion) from initially Rp 1,047.7 trillion, to accelerate infrastructure development and add energy subsidies in protecting the poor.

The Indonesian Democratic Party of Struggle (PDIP) and the People’s Conscience Party (Hanura) walked out of a plenary session on Monday after refusing to accept Mulyani’s presence in representing the government.

In March, the House voted 325-212 that all officials involved in the Rp 6.76 trillion Bank Century bailout should face due legal process. The bailout had been authorized in November 2008 by Mulyani and then Bank Indonesia governor Boediono, who has since been elected as Vice President.

House Deputy Speaker Anis Matta of the Prosperous Justice Party (PKS), who led the plenary session, had to adjourn the session for almost two hours for lobbying. Lawmakers finally agreed to proceed with the session.

The budget revision is needed to adjust to current global conditions, particularly the fluctuating oil prices and changes to the foreign exchange rate of the rupiah against the US dollar.

The benchmark Indonesian Crude Price (ICP) has been increased to $80 per barrel from $65, and the rupiah per dollar to 9,200 from 10,000.

Several priority infrastructure projects include the development of Kualanamu airport, post-quake rehabilitation and reconstruction in North Sumatra and West Java, said Mulyani who was accompanied by Coordinating Economic Minister Hatta Rajasa in drafting the budget revision since was rejected by lawmakers in the initial budget revision hearing.

Energy subsidies rose significantly from Rp 106.5 trillion to Rp 144 trillion, with the option given to the government to adjust subsidized fuel prices in case ICP rose 10 percent above the assumed price in one month.

“The government agrees with the House on the importance to adjust fuel prices,” Mulyani said.

Hatta said the government would adjust electricity rates by 10 percent on average in July, subject to the approval of House Commission VII overseeing energy affairs.

“We want [electricity rates] for under 450 watts to remain unadjusted,” he said.

Electricity subsidies increased slightly from Rp 54.5 trillion to Rp 55.1 trillion, less than the Rp 56.1 trillion proposed.

The government expects state power firm PT PLN to gain additional revenues of Rp 1 trillion from a new rates scheme for bigger power consumers.

At present, clients using 6,600 volt-amperes (VA) and above can buy electricity at subsidized rate only if their consumption does not exceed 50 percent of national consumption under that category. Surpassing this threshold means they must pay for their power usage at the market price.

J. Purwono, director general for electricity and energy utilization, said the government had mandated PLN to reduce the threshold to 30 percent. He added that this matter was subject to House approval.

Minister reveals mammoth graft at tax office

The Jakarta Post | Tue, 05/04/2010 7:00 AM

In a recent drive to quell tax crimes, Finance Minister Sri Mulyani Indrawati unveiled Monday an all-out investigation into three cases that have caused state losses of more than Rp 600 billion (US$66 million).

Sri Mulyani Indrawati: ANTARA

The cases revolved around fictitious claims for tax refunds involving a North Sumatra business group known by the initial PHS. The leader of the group, under the initial of R, is believed to have fled the country after plundering Rp 300 billion.

Another case involved an unofficial tax consultant identified by the initials Sol, and a service company identified by the initial W with its leader, identified by the initials TKB. They are reported to have caused losses worth Rp 247 billion and Rp 60 billion respectively.

Investigation is also underway on around 100 taxpayers suspected of engineering fictitious claims for tax refunds on value-added tax (VAT), and falsifying tax invoices.

The taxpayers are based in Jakarta, Medan in North Sumatra, Bandung in West Java, and Surabaya.

According to the Finance Ministry, the tax crime method was to make a fictitious transaction between firms to produce a VAT bill. Through loopholes in the tax system, the companies then filed a claim in the form of a tax refund.

“As the method is very systematic, the ministry has expanded its investigation to detect the involvement of tax officials by deploying a joint team consisting of the internal investigation division and the tax office’s internal supervision unit.”

“The investigation will reach the highest level,” she said.

The ministry will also investigate retired tax officials working as tax consultants.

There are 32,000 tax officials throughout the archipelago, supervised by only eight investigators and supervisors at the directorate of internal compliance of the Directorate General of Taxation in Jakarta, according to the chairman of the Committee for Tax Supervision Anwar Suprijadi. — JP

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Judicial Commission kicks off new justice selection

Bagus BT Saragih, The Jakarta Post, Jakarta | Mon, 05/03/2010 9:07 PM

As many as 25 justice candidates have begun undergoing a series of tests conducted by the Judicial Commission to fill the two vacant justice positions at the Supreme Court.

Judicial Commission chairman Busyro Muqoddas told reporters on Monday the candidates consisted of six people proposed by the government, 13 judges proposed by the Supreme Court, and six other candidates from the public.

“In this series of tests, we want to highlight and stress on the integrity aspect. We have learnt much from the recent revelation about the alleged mafia in the judiciary system,” Busyro said.

There were 53 people submitting applications for the justice selection to the Judicial Commission. From that number, only 26 people have been considered eligible to face the tests.

One of the eligible candidates suddenly quit the race due to an administrative reason.

Monday’s test was a problem solving assessment. “They were faced with a legal problem and supposed to make a short paper about how to solve the problem,” Busyro said.

On Tuesday, the candidates would be asked to make profile assessments. “For example, if the candidate is a judge, he or she is supposed to make a short paper about the verdicts he or she had made. If the candidate is a lawyer, create an explanation about some cases he or she has ever handled,” Busyro said.

In the following days, the candidates would face psychology tests, medical check-ups, and interviews.

“In the end, we will select the best six candidates to be handed over to the House of Representatives in June,” Busyro said.

House’ Commission III on law and human rights will conduct fit and proper tests on the six candidates to select two new justices.

Police Promise to Probe Officer’s Rp 95b Account

Jakarta Globe, May 02, 2010

Police have vowed to launch an investigation into one of their own after an antigraft watchdog claimed a senior officer had bank accounts containing more than Rp 95 billion ($10.55 million).

“We’ll probe the accounts to see if there’s any truth to the allegations,” Insp. Gen. Edward Aritonang, a spokesman for the National Police, said on Sunday. “If they prove true, then we won’t hesitate to conduct an internal inquiry or even charge the person in question.”

Despite the strong words, however, Aritonang said the police did not yet know who the watchdog, Indonesia Corruption Watch, was referring to.

ICW has alleged that two shady accounts belonging to a two-star police general currently serving at National Police headquarters contained a total of more than Rp 95 billion. The organization, however, will not divulge the general’s name before submitting its report to the presidentially appointed Judicial Mafia Eradication Task Force this week.

“From 2005 to 2008, this general received payments from individuals and private companies,” said Tama S Langkun, an ICW researcher. “We hope the task force can order the PPATK [ Financial Transaction Reports Analysis Center] to trace the transactions back to their sources.”

PPATK chairman Yunus Hussein is also a member of the task force.

“If the money was obtained legally, there should be no problem,” Tama said. “However, as a law enforcer, the general must disclose his wealth and be held responsible should the task force find indications of money laundering, gratuities or even bribes.”

Task force officials could not be reached for comment on Sunday.

Bambang Widodo Umar, a legal analyst at the University of Indonesia, criticized the National Police for its “soft stance” against corruption within the force.

“The PPATK automatically reports any suspicious transactions to the police, so you have to wonder why the police never picked up on this,” he said.

In 2005, the PPATK reported that 15 high-ranking officers had suspicious bank accounts with money that could be traced to illegal logging, counterfeit money and gambling cases being investigated by police.

The National Police, which was helmed at the time by Gen. (ret.) Sutanto, who is now head of the State Intelligence Agency (BIN), claimed “there is no evidence of money-laundering or bribery” linked to the accounts of the 15 officers. Nivell Rayda

Related Article:

Police chief denies Rp 95b in high-ranking officer’s bank account

Indonesia Urged to Focus on Local Bonds

Jakarta Globe, Faisal Maliki Baskoro & Bloomberg, May 02, 2010

With the crisis in Europe roiling global markets, analysts believe the government should postpone inter national bond issues to cover the budget deficit and instead raise funds in the strong domestic capital markets.

“It is in the best interest for the government to delay sales until global economic conditions become normal again,” Purbaya Yudhi Sadewa, chief economist at state-run Danareksa Research Institute, told the Jakarta Globe on Sunday.

On Friday, Bloomberg reported that the government had delayed a planned sale of 100 billion yen ($1.1 billion) of Samurai bonds scheduled for June, according people familiar with the matter. The sources said a meeting with potential investors set for this month had also been postponed.

Purbaya said Greece’s debt disaster likely prompted the delay. Under such conditions, issuers in emerging nations such as Indonesia could be forced to offer higher yields, making it more expensive to access funding overseas.

“That would cause the government to pay more” for financing, he said.

With the nation still experiencing a surge in capital inflows, there is perfect momentum to issue domestic bonds, he said.

Foreign inflows have helped make Indonesia’s currency, stocks and bonds Asia’s best performers in the past 12 months.

Helmi Arman, an economist at PT Bank Danamon, said that judging from the current domestic market performance, issuing local bonds was more favorable than selling debt overseas. But he stressed that a Samurai bond sale would still be needed this year “to provide diversification of financing sources.”

Indonesia has been selling debt overseas to help cover its 2010 budget deficit, forecast at 2.1 percent of gross domestic product, or Rp 129.8 trillion ($14.4 billion). Through February, the government has met 24.5 percent of its bond issuance target of Rp 233.6 trillion on the back of strong foreign demand for the nation’s high-yielding assets.

Foreign holdings of Indonesian bonds have risen 38 percent this year to Rp 148.5 trillion, according to Finance Ministry data.

In February, the government canceled plans for the country’s first sale of euro debt because there was little appetite from investors amid Europe’s debt problems.

Over the weekend, the government of Greece agreed to a 120 billion euro ($160 billion) bailout package from the European Union and the International Monetary Fund to rescue the nation from its soaring public debt.

Chandra M. Hamzah meets Facebookers

The Jakarta Post, Jakarta | Sun, 05/02/2010 7:12 PM

The Corruption Eradication Commission (KPK) deputy chairman Chandra M. Hamzah answered a Facebook group’s invitation by attending the group Forum Silaturahmi Facebookers Indonesia (FESBI) gathering in Jakarta, on Sunday.

FESBI is the embryo of the Facebook-based group that supports Chandra and another KPK deputy chairman Bibit Samad Rianto regarding their criminalization by the police force in a possible bribery case.

“I was invited so I came,” Chandra said as quoted by kompas.com, adding that Bibit could not attend the gathering because he had a work meeting in Manado.

Chandra denied allegations that stated he was looking for more support to face a legal suit in the case. The South Jakarta District Court recently ordered a trial of Chandra and Bibit.

The Sunday’s gathering discussed government’s policies and system that opposed the established law, which has hampered public needs.

President congratulates RI workers on labor day

Antara News, Saturday, May 1, 2010 22:48 WIB

Jakarta (ANTARA News) - President Susilo Bambang Yudhoyono on Saturday congratulated all workers in Indonesia on the occasion of Labor Day, May 1.

He conveyed his greetings at a lunch with the management and workers of PT Toyota Motor Manufacturing Indonesia at the company`s plant in Karawang, West Java.

In his speech before the lunch , the President expressed the hope that the country`s economy would continue to grow so that businesses would progress and thus also be able to improve the welfare of workers.

"I have instructed all regional leaders, district heads, mayors and provincial governors to make Labor Day an event that brings goodness not only to workers but to all community members by improving cooperation and cohessiveness between workers and government officials," he said.

The government, he said, would work hard so that those who had work could continue working and improve their welfare without fear of being laid off.

He said the government would also keep creating job opportunities to reduce the number of unemployed people.

"These are two things the government and all of us will struggle for," he said.

He appealed to workers to maintain high productivity so that their companies could progress and not go bankcrupt.

To companies he said he hoped if they made more profit they could share it with their workers so that their welfare would improve.

Yudhoyono called all parties to shun violence, destructive acts and strikes that would only hurt all parties, namely the workers themselves, the companies and also the state.

"If there is a problem, the management, unions and workers had better meet to solve it. It is better than torching, destroying and getting angry," he said.

He said the government was aware of the importance of creating stable political conditions, security and good economic policies to make the real sector advance to support economic growth.

Thousands of workers took to the streets in the capital city on Saturday to mark the event.