New chief for central bank<\/p>\n
The appointment of a new governor of a central bank is quite
\nan important state affair in almost all countries, closely
\nwatched by the market in view of a central bank's function as the
\nbedrock of the monetary system, the guardian of monetary policy
\nand the arbitrator of the financial system.<\/p>\n
But the selection of a new governor for Bank Indonesia by the
\nHouse of Representatives within the next three months is even
\nmore crucial, because this will be the first time a new governor
\nhas been selected since the bank became a politically independent
\ninstitution by virtue of the central bank law in May 1999.<\/p>\n
The selection process is also quite an opportune time for the
\ncentral bank to make a clean break from its scandal-tainted past,
\na legacy from the corrupt, authoritarian government of former
\npresident Soeharto, who was ousted in May 1998.<\/p>\n
The period between 1997 and mid-2001 was a turbulent one for
\nBank Indonesia, marred by allegations of corruption and
\ncollusion. Its governor, Sjahril Sabirin, became embroiled in a
\npersonal dispute with then president Abdurrahman Wahid in 2000,
\nwhich was followed by Sjahril's prosecution and jailing for six
\nmonths and capped by the resignation of five of the bank's seven
\ndeputy governors in November 2000, though they remained at their
\njobs.<\/p>\n
Bank Indonesia was on the verge of insolvency in mid-2000
\nafter the government did not recognize the equivalent of several
\nbillion dollars in emergency liquidity credits the central bank
\ninjected into the banking system at the height of the financial
\ncrisis between late 1997 and early 1999. Only a last-minute
\npolitical compromise between the government and the House saved
\nthe central bank from technical bankruptcy.<\/p>\n
Even though Sjahril was acquitted of all charges of corruption
\nby the high court, several former deputy governors of the central
\nbank are still on trial for graft and allegations of corruption
\nrelated to the emergency liquidity credits continue to haunt Bank
\nIndonesia.<\/p>\n
President Megawati Soekarnoputri has nominated three
\ncandidates to replace Sjahril, who was appointed by Soeharto in
\nFebruary 1998 and who will conclude his term on May 17.<\/p>\n
All of the candidates are central bank insiders with adequate
\ntechnical competence. Miranda Swaray Goeltom is currently a
\ndeputy governor and widely known as Sjahril's most trusted member
\nof the board of governors and a popular and articulate
\nspokesperson for Bank Indonesia. Burhanuddin Abdullah is a former
\ndeputy governor who was appointed by Abdurrahman as his chief
\neconomics minister in June 2001, a post he held for only about a
\nmonth before President Megawati took over the government in July.
\nCyrillus Harinowo is also a former deputy governor who is now on
\nassignment as a technical assistance adviser to the International
\nMonetary Fund.<\/p>\n
Technical competence is indeed crucial for the chief of the
\ncentral bank because monetary policy is the most closely watched
\nindicator of economic policy, and monetary policy action tends to
\nhave a fairly immediate impact on real economic activities. That
\nis perhaps one of the reasons why Megawati did not venture
\noutside of Bank Indonesia to look for alternative candidates.<\/p>\n
However, technical competence is only one of the basic
\nrequirements that must be met by the new governor. More important
\nis the integrity and managerial and leadership skills to preside
\nover the board of governors and to resist political pressure,
\nwhile at the same time maintaining good coordination with the
\nfiscal authorities (government).<\/p>\n
Moreover, it is the integrity and leadership of an
\ninstitution's chief that inspires market confidence, particularly
\nin a politically independent institution like the central bank.<\/p>\n
That is because Bank Indonesia's basic tasks, as stipulated
\nin the 1999 central bank law, are extremely daunting. Different
\nfrom central banks in most other countries, which are tasked only
\nwith maintaining currency stability or guarding inflation rates,
\nBank Indonesia is responsible for maintaining the stability of
\nthe rupiah, general price stability (low inflation) and banking
\nsupervision, at least for the next two years.<\/p>\n
Also different from many other central banks, the position of
\nthe central bank governor in Indonesia is unusually powerful
\nbecause the law stipulates that in case the board of governors
\ncannot reach a consensus the governor will make the final
\ndecision.<\/p>\n
We should allow the House to select the candidate with all the
\nbasic characteristics needed to execute the daunting and
\nimportant tasks of the central bank. But, given the crucial role
\nof the central bank, the politicians would be well advised not to
\nconsider the interests of their political parties during the
\nselection process.<\/p>\n
Important, too, is that the House allow for extensive,
\nvigorous public debate on the candidates, involving experts from
\nfinancial organizations and institutions, to ensure that the
\nselected candidate is the most able to lead Bank Indonesia into a
\nnew era of strong market confidence in Indonesia's monetary
\npolicies and financial system.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/new-chief-for-central-bank-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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