Indonesia's vice president faces questioning over bank bail-out

Jakarta - Indonesian Vice President Boediono was questioned by a House of Representatives special committee Tuesday for his role in the controversial bail-out of a minor bank last year. Boediono, who was governor of the central bank at that time, insisted that rescuing Bank Century was the "right decision." If the bank had been allowed to fail it would have had systemic impact on the country's banking industry, he said.

Boediono and Finance Minister Sri Mulyani Indrawati are both deemed responsible for the 6.7-trillion-rupiah (716-million-dollar) bail-out in late 2008. Indrawati was also faces questioning by the committee.

The cash injection was condemned by government auditors and led to accusations of graft and illicit campaign financing.

Boediono said the country at the time was facing a possible economic crisis due to the global downturn with Indonesia having unstable currency reserves and bank having stopped giving loans to each other. Rumours about ailing banks spread rapidly and foreign exchange was fluctuating.

"In such a kind of situation if a bank was left to collapse, no matter how small, it would cause a chain reaction in the banking industry," argued Boediono, who like many Indonesians goes by one name.

In its report to the House last month, the Supreme Audit Agency listed a number of irregularities linked to the bail-out process, for which the central bank failed to provide full information.

On Monday, former central bank officials including former governor Burhanuddin Abdullah, dismissed Boediono's line of argument, and said that Bank Century was "too small to pose a systemic threat" to the country's banking sector and the economy.

The emergency bail-out was enacted with a presidential decree. Politicians, however, later argued there was no legal basis for the rescue, particularly since most of the funds were injected after parliament had rejected a government regulation in lieu of law.

President Susilo Bambang Yudhoyono last week rejected the committee's appeal to suspend both Boediono and Indrawati while the investigation is underway.

Economists and bankers had warned that the prolonged political debate over the rescue may harm the country's economy as Indonesia loses momentum to bolster growth, while other nations gear up to attract investors.

Yudhoyono has strongly denied any involvement, insisting that the bailout was necessary to protect the economy from a crisis.