Indonesia's top reformer defends bank rescue

Indrawati, a former IMF director, appeared before a parliamentary committee investigating the bailout of small lender PT Bank Century in 2008.

The inquiry, which is questioning two of the most senior technocrats in the government, could have serious implications for Indonesia's improving political and economic outlook and is seen as a test of Yudhoyono's commitment to reform.

Technocrats Indrawati and Vice President Boediono, who was governor of the central bank at the time, both approved the 6.7trn rupiah ($730.6m) government rescue of Bank Century late in 2008 as Indonesia started to feel the impact of the global financial crisis.

"We were not facing normal conditions. Given the global crisis situation that affected the whole world, every country applied policies to protect the economy and avoid the crisis," Indrawati told the committee.

Indrawati and Boediono are considered the main drivers of reform in Southeast Asia's biggest economy and play a critical role in attracting foreign investment for infrastructure and other projects.

Some lawmakers have called on Indrawati to be suspended or to resign but investors so far appear to be shrugging off the likelihood that she or Boediono will lose their jobs.

"Real threat"
Indrawati said the president had asked her and Boediono to "protect Indonesia from a crisis like we had in 1997, 1998", when Jakarta was rescued by the IMF.

She said the banking sector had faced a real threat because of the risk bank depositors would panic and withdraw funds.

"In this situation, public trust of banks is affected, and this shows a systemic condition. We were in a situation where we were going to be or were about to reach a state of panic, that was real," Indrawati said.

The finance minister pointed out several lawmakers had urged her to provide "full assistance" to Bank Century at the time.

Boediono, who has already been questioned twice by the committee, has also defended the decision to rescue Bank Century. He said the bank had to be rescued to prevent a "domino effect" in the banking system that would have panicked investors.

Yudhoyono was re-elected in July thanks to his government's economic policies, reforms, and efforts to tackle corruption.

Much of the credit goes to Indrawati and Boediono. Analysts have warned that foreign investors would worry about prospects for reform and there would be a sharp sell-off in the rupiah, stocks and bonds if either were forced to resign.

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