UPDATE 2-Indonesia court says Time magazine wins Suharto case

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By Olivia Rondonuwu

JAKARTA, April 16 (Reuters) - Indonesia's Supreme Court has reversed a 1 trillion rupiah ($93 million) libel ruling against Time magazine over a story about ex-president Suharto, in a case seen as a key test of the country's legal system and freedom of speech.

Time's lawyer, Todung Mulya Lubis, said the Supreme Court's decision showed the court respected the freedom of the press to cover issues of public interest.

"We hope that through this decision journalists can be free and comfortable to work in Indonesia," Lubis said.

Time, owned by Time Warner Inc (TWX.N), published a May 1999 cover story alleging that Suharto and his family had amassed a fortune of around $15 billion, including $9 billion transferred via Switzerland to an Austrian bank account.

"The story in Time magazine is still within the press code of conduct so it is not acting against the law," Hatta Ali, a Supreme Court judge, said in statement published on the court's website.

Explaining the ruling, Ali told Reuters that Time had not breached press laws because it had given Suharto the right to respond.

In 2007, the Supreme court ordered Time to pay damages and print an apology for defaming Suharto, who died in 2008 aged 86.

The magazine filed a petition to Indonesia's Supreme Court in February 2008 to reverse the ruling.

Mohamad Assegaf, a Suharto family lawyer, said he was shocked by the court's decision, but added that the legal case could not be taken any further since it was the final legal avenue.

"We have repeatedly asked Time to prove its story that Suharto had transferred a huge amount of money to Swiss banks. We asked Time to prove it and it failed."

President Susilo Bambang Yudhoyono, who is seeking re-election on July 8, is credited with making some progress fighting endemic graft in Southeast Asia's biggest economy.

But investors cite an unpredictable court system as a deterrent to investment. A survey by Indonesia's anti-corruption agency in February found the judiciary was the most graft-prone public institutions in Indonesia.

"It's an encouraging development but it's too soon to say that the judiciary as a whole is improving," said Kevin O'Rourke, a Jakarta-based political risk analyst.

Suharto ruled Indonesia for more than three decades until he was toppled in 1998 amid a financial crisis and economic collapse. Many members of his family and circle of friends won attractive contracts and deals during his rule.

Transparency International put Suharto's assets at between $15 billion and $35 billion, but he and his family have always denied any wrongdoing.

Suharto was charged with embezzling hundreds of million dollars after he left office, but the government later dropped the case because of his poor health.

($1=10780 rupiah) (Additional reporting by Sunanda Creagh; Writing by Ed Davies; Editing by Jerry Norton/Sara Webb) (olivia.rondonuwu@thomsonreuters.com; Tel +6221 384 6364; Reuters Messaging: olivia.rondonuwu.reuters.com@reuters.net))