Central bank law issue to be reviewed<\/p>\n
JAKARTA (JP): A joint panel of international and local experts
\nwill start reviewing this week the controversial government-
\nproposed amendment of the central bank law, which seems to be the
\nonly remaining major stumbling block to an agreement between the
\ngovernment and the International Monetary Fund.<\/p>\n
Dipo Alam, who leads the government team in the discussions on
\nthe technical details of the country's economic reform program
\nwith the IMF, said that most of the differences with the Fund had
\nbasically been settled during recent discussions with the IMF's
\nvisiting technical team.<\/p>\n
\"More than 90 percent of the (new) LoI has been agreed ... We
\nnow only have to focus on the panel, which will start working on
\nApril 3,\" he told reporters late last week.<\/p>\n
The LoI contains a set of economic reform programs to be
\nimplemented by the government in return for the IMF loan.<\/p>\n
The four-member panel consists of two international experts,
\nformer New Zealand central bank governor Donald Thomas Brash and
\nformer Chilean central bank governor Roberto Zahler, and two
\nlocal experts, former director of Bank Indonesia Budiono and
\nSutan Remy Sjahdeni, an independent banking law expert who was
\ninvolved in the drafting of the existing central bank law.<\/p>\n
The government proposed a bill to amend the central bank law
\nto the House of Representatives late in November last year, which
\nCoordinating Minister for the Economy Rizal Ramli said was
\nprimarily aimed at boosting the accountability of Bank Indonesia,
\nwhich had been plagued by massive corruption in the past.<\/p>\n
But the proposed amendment has caused deep concern among top
\nIMF officials as it could jeopardize the independence of Bank
\nIndonesia.<\/p>\n
The IMF delayed the disbursement of its latest US$400 million
\nloan tranche to Indonesia late last year, partly due to
\ndisagreement with the government over the amendment plan.<\/p>\n
Rizal abruptly halted the passage of the bill through the
\nHouse in February and rushed to Washington to lobby senior IMF
\nofficials. This move ended in a compromise agreement, namely the
\nformation of a panel of international and domestic experts to
\nreview the proposed amendment of the central bank law and to
\nprovide input.<\/p>\n
The House is expected to resume debating the bill in May.<\/p>\n
There were several controversial issues in the original
\ngovernment-proposed amendment.<\/p>\n
The first was the proposal requiring existing Bank Indonesia
\ngovernor and directors to effectively resign once the House
\napproved the amendment.<\/p>\n
This requirement has only strengthened the view that the
\nproposed amendment was merely an attempt by President Abdurrahman
\nWahid to oust Bank Indonesia Governor Sjahril Sabirin, raising
\nconcerns that the central bank could be easily influenced by the
\ngovernment.<\/p>\n
The existing Bank Indonesia Law No. 23\/1999 endows the central
\nbank with independence and frees it from government intervention.<\/p>\n
The second was the plan to allow Bank Indonesia to resume its
\nfunction of providing special loans to the government, which is
\nprohibited under the existing central bank law.<\/p>\n
Analysts fear that if Bank Indonesia were allowed to channel
\nspecial loans again, it would make the central bank susceptible
\nto government intervention, particularly if the state budget was
\nin difficulty.<\/p>\n
According to the existing law, Bank Indonesia's objective is
\nto achieve and maintain the stability of the rupiah particularly
\nvia monetary policy.<\/p>\n
The third issue was the plan to allow senior members of
\npolitical parties to become members of Bank Indonesia's board of
\ngovernors, raising concern about the loyalty and the integrity of
\nthe politicians.<\/p>\n
It is not clear whether the panel of experts would only review
\nthe main issues or would undertake a comprehensive review of the
\ngovernment-proposed amendment of the central bank law.<\/p>\n
Bank Indonesia deputy governor Achjar Iljas has asked the
\npanel to undertake a comprehensive review in order to eliminate
\n\"certain interests\" attached to the proposed amendment.<\/p>\n
Analysts said that once the panel completed its job, it would
\nprovide the right conditions for the IMF special mission to visit
\nJakarta to reach a new agreement with the government, paving the
\nway for the disbursement of the stalled loan.<\/p>\n
There has been speculation that the IMF mission could visit
\nIndonesia soon.<\/p>\n
The government has recently settled the other two major
\nissues, including the plan to sell the government's stake in the
\npublicly listed Bank Central Asia (BCA) and Bank Niaga in the
\nmiddle of this year, and the issuance of a government decree
\nbanning regional administrations from taking out loans despite
\nthe new fiscal decentralization policy.<\/p>\n
The IMF money is crucial to reviving the confidence of other
\ninternational lenders and investors, which is key to curing
\nIndonesia's sick economy. (rei)<\/p>",
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