Imagine yourself being an experienced doctor who acts as the head of a hospital which, because of one mistreatment or two that someone did in the past, is on the brink of a crisis and people don’t seem to put faith in your hospital as they were used to. Just last year you were addressed by the hospital’s directors about the importance of doing what is necessary to prevent the crisis from becoming any worse.
In this situation, you simply realize that another mistreatment or death of a patient will trigger a catastrophic crisis of confidence to the hospital. People around the city will lose faith in the hospital and will never come for treatment anymore. Your own patients can also move away to another hospital. Eventually, as the hospital loses profit and goes under, the worst thing that could possibly happen is your workplace will go bust and you will ended up derided by the hospital’s directors for your lack of competence in handling the hospital’s management.
You can only hope that you will not be tangled in such circumstances –yet what happens next doesn’t really align with that expectation of yours. One day a nurse runs all the way through the hospital alley to your office to bring you urgent news that a male patient is dying and you need to make a swift decision about his treatment. The nurse presents you all the options available as well as her advice:
- You can cure him with a remedy. Unfortunately after diagnosing his symptoms, the price of the proposed remedy is astronomical since it is worth Rp. 6.6 trillion and, because of some hospital’s insurance policy, it is the hospital not the patient who has to pay for the whole treatment.
- You can just let him dead. But the nurse reminds you that the whole hospital is overwhelmed with crisis of confidence at the moment and if you let him dead, there is a possibility that no one will come to your hospital anymore and patients inside the hospital are likely to move away to other hospital too. Choosing this option will save Rp. 6.7 trillion, but puts approximately Rp. 1,900 trillion of hospital money at risk.
- You can reduce the impact of the crisis of confidence by applying blanket guarantee –a hospital policy which ensures the life of all patients inside the hospital–, and then let the patient dead. Unfortunately the nurse informs you that the vice-executive director of the hospital is renowned as a great opposition of a blanket guarantee policy. This option is simply not feasible since he will surely overrule the policy if it is to be implemented.
The doctor in this story, Sri Mulyani Indrawati, ended up choosing the first option among the three options available. And she, with the advice of the nurse (Boediono), eventually decided to inject a lavish remedy worth of Rp. 6.7 trillion in the form of bank bailout to the patient; Robert Tantular and his ailing Bank Century. One year afterwards, instead of thanking her of rescuing the hospital from collapsing, the hospital’s directors (the House of Representatives) furiously point their fingers on she and her partner Boediono as they think the costly remedy was not actually necessary.
Rather than recognized as heroes who secured Rp. 1,900 trillion of hospital money, both the doctor and the nurse is considered as the perpetrators who cost the hospital to suffer a great loss of Rp. 6.7 trillion. The hospital’s directors are also in the notion that the theory of deeming the patient’s death will generate greater loss to the hospital was completely baseless, while both the doctor and the nurse think otherwise.
Now who’s right and who’s wrong?
The lingering debate of the Bank Century bailout is always about whether the bank poses a systemic threat or not if it goes broke. Initially considered as a necessary policy to be implemented at the moment when financial crisis looms, the bailout later turns into one complex twist of controversy. Many people argue that both the doctor and the nurse, as depicted in the hospital analogy, should have taken the second option and let the patient dead instead of giving him such costly remedy.
The fact that even Sri Mulyani and Boediono could not present any solid proof whether the collapse of Bank Century will cause bank rush among Indonesian depositors –whose money in the financial system is accumulated in the level of Rp. 1,900 trillion– is unassailable. The calculation of the possibility of possible crash in Indonesia’s financial system, however, comes mostly from the intuition of both those technocrats themselves.
But, because people’s physiological level is difficult to measure (especially during crisis period as people become more volatile), there is also no solid proof that such panic and bank rush will not happen. In fact, the argument of saying that ‘Bank Century will not pose a systemic threat’ comes also from the intuition and somewhat one-dimensional analysis of the critics and oppositions of the Rp. 6.7 trillion bailout.
In economics, the expression of every argument has to be always supported with solid data –so do every argument in the debate to judge whether Bank Century bailout is necessary or not for Indonesia’s economy. So far, the only solid data which we have now is Indonesia, with various economic policies that Sri Mulyani and Boediono implemented during last year’s hard times (including their decision to give bailout to Bank Century), successfully managed to weather a financial crisis that see many countries’ economies slumping to their lowest level.
Thus, based on the data of our various bright macroeconomic indicators we have at the moment, we have absolutely no proof that the government’s decision to hand bailout to Bank Century was a wrong one.
And when you argue that something is wrong but you cannot prove it, you cannot really say that it is wrong.
As no one have the proof indicating what they did was wrong, Sri Mulyani and Boediono surely did not deserve what they were encountering few days ago. Besides, up to now they have always done things right: it is all because of their economic proficiency and decisive actions that our economy is still standing tall at the time when most of the economies in the world are engulfed in a calamitous recession. Instead of receiving blistering words from the House members and several universities’ so-called activists, in fact Indonesians should have given them credit and praise for all of their hard work.
If only Bank Century inquiry committee members –as well as university students who humiliated Sri Mulyani and Boediono by referring them as thieves– really understand what situation and trade-off that these policymakers were into at that time. Talk is cheap, but if they were the decision makers, would those university students and Bank Century inquiry committee members have the guts to salvage Rp. 6.7 trillion with the risk of putting Rp. 1,900 trillion in jeopardy and wrecking the entire of Indonesia’s economic framework?
And before they deliver their answer, it is better to remind them that when they make the decision, it’s the life of 200 million Indonesians which they put at stake.
This article was published in The Jakarta Post on Tuesday, January 19 2009