An Indonesian court on Monday acquitted the former head of the country’s largest lender, Bank Mandiri, of corruption charges in a decision that analysts said highlighted potential weaknesses in the anti-graft war of President Susilo Bambang Yudhoyono.

Before his arrest last May ECW “Eddie” Neloe was one of Indonesia’s most powerful bankers and, as the guardian of the biggest state bank, considered by some in financial circles to be more powerful than the central bank governor.

His arrest with two other Mandiri executives was seen by many analysts as a milestone in the corruption crackdown Mr Yudhoyono launched soon after his 2004 election.

Monday’s verdict on the former president and chief executive of Mandiri was one of the biggest to date to result from Mr Yudhoyono’s anti-graft push and was being watched closely as a sign of how potent it is likely to be.

The case against Mr Neloe hinged on a $16m loan to a Sumatran hotel developer, Cipta Graha Nusantara, one of more than two dozen loans being examined by prosecutors during an ongoing investigation into up to $1.3bn lent by Mandiri during Mr Neloe’s tenure. Mr Neloe could still face charges relating to another of these cases.

In their Monday ruling a three-judge panel of the South Jakarta District Court acquitted Mr Neloe on technical grounds, declaring that because the loan remained current and no payments had been missed there was no evidence of any “loss” by Mandiri or the state.

Mr Neloe reacted with joy to the verdict. “Today it has been proven that the law still works in this country,” he told reporters. “I have received justice.”

Prosecutors said they would appeal on the grounds that the judges had used a 2004 law retroactively, something the country’s Constitutional Court has declared unconstitutional.

Governance activists said the verdict demonstrated that Indonesia’s legal system remained a weak link in the fight against corruption either because of its own problems with graft or the weak cases presented by prosecutors.

HS Dillon, a former executive director of the Partnership for Governance Reform in Indonesia, said the case highlighted the fact that many corruption cases remained focused on potential state losses rather than the broader issues of governance.

“Corruption means you are using your powers to benefit others who may not be worthy of benefit. That is the meaning of corruption, not whether or not there has been a loss,” he said.

Indonesia has long been listed among the most graft-ridden nations in the world in the annual rankings of watchdog Transparency International. Since the 1998 fall of strongman Suharto successive governments have only selectively pursued those accused of corruption.

According to Transparency International Mr Suharto and his family secreted away as much as $35bn during his 32 years in office. However the 84-year-old former dictator remains free and only two members of his family – a son and a half-brother – have been convicted of any wrongdoing.

“It is still difficult to punish the big fish of corruption here,” said Teten Masduki, executive director of Indonesia Corruption Watch.

Additional reporting by Taufan Hidayat

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