JAKARTA (Reuters) - Indonesia's president on Monday urged police and prosecutors to drop a controversial case against two anti-graft officials, but failed to bow to public calls for the sacking of his top law enforcement officials.
President Susilo Bambang Yudhoyono, a reformist ex-general whose style is typically cautious and consensus-driven, may have squandered an opportunity presented by a huge graft scandal to make bold, sweeping changes as part of a wider reform of the law enforcement institutions.
His re-election in a landslide victory in July on the back of his commitment to reform is one reason why Indonesia, Southeast Asia's biggest economy, is back on many investors' radars again.
Indonesian stocks, bonds, and the currency have all surged as investors rushed to take advantage of political and economic stability and Yudhoyono's pledges of reform.
In his first response to recommendations of legal experts to drop proceedings against two top officials of the Corruption Eradication Commission (KPK), the president said the public had lost confidence in the police and the attorney general's office.
Yudhoyono, in a televised broadcast, said it was time for both to undergo reforms, but that it was not appropriate for him to interfere in the case against the KPK officials.
"A solution and option which is better is that the police and the attorney-general's office do not bring this case to court," he said of the case against the officials.
"But corrective action toward those three institutions needs to be taken immediately. I mustn't and will not enter this area because the power to stop this lies" with the police and the attorney-general's office, he said.
OUTFLOW OF FUNDS UNLIKELY
Analysts said many Indonesians and foreigners were likely to be disappointed, though the latest twists in the corruption scandal probably will not prompt an outflow of funds.
"People should not underestimate how devastating this is to his presidency. His second term is utterly derailed at this point. No one is talking about anything except this horrific scandal," said Jeffrey Winters, professor in political economy at Northwestern University, Chicago.
"If he really wants to save his presidency he needs to remove key players in the attorney-general's office and the police department. If he doesn't remove people that the public are now absolutely convinced are corrupt, he risks his entire reputation as someone who upholds the law."
The president's handling of the case is likely to cost him much public support, although he is in no danger of being forced to step down.
Yudhoyono has come under intense pressure to dismiss the attorney-general and head of the national police following the scandal in which police and state prosecutors are alleged to have framed the two KPK officials in a bid to undermine the agency.
The KPK has proved very effective in investigating graft and while it is popular with the public, it has made many enemies among the political and business elite as a result.
An independent team of legal experts appointed by the president to investigate the matter called for the case against the two KPK officials to be dropped and for those involved in fabricating evidence to be punished.
The team also urged the president to pursue sweeping legal reforms and personnel changes in the attorney-general's office and police.
Yudhoyono has already appointed Kuntoro Mangkusubroto, a respected technocrat who heads a special presidential "West Wing", to take charge of co-ordinating legal reform although few details have emerged.
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