Supervising central bank<\/p>\n
The amendments to the 1999 Bank Indonesia Act that were
\nproposed by the government in late 2000 were designed to have
\nbeen approved by the House of Representatives by January, 2001 at
\nthe latest because the proposed changes would affect only several
\narticles that would make the central bank's board of governors
\nmore accountable.<\/p>\n
However, the planned amendments are still pending. Even the
\nlatest plan to have the proposed changes approved by the House at
\na plenary session today (Sept. 23) is not yet definitively final
\ndue to widely differing views between the government and the
\ncentral bank and between the government and the House.<\/p>\n
The political process for amending the Bank Indonesia Act has
\nindeed been quite turbulent, spiced with issues about the
\npersonal animosity between then Bank Indonesia Governor Sjahril
\nSabirin and then president Abdurrahman Wahid, and mired in an
\ninternational controversy after the intervention by the
\nInternational Monetary Fund.<\/p>\n
Several House leaders who had initially agreed to speed up the
\ndeliberation of the proposed amendments in December, 2000, later
\ndeclined to approve the changes upon learning that the real
\nmotive behind the proposed amendments, though coated in a lofty
\nobjective' to make the central bank's board of governors more
\naccountable', was to fire Sjahril.<\/p>\n
Despite the initially deceptive motive behind the planned
\namendments, the issue of accountability remains a bone of
\ncontention within the House deliberations. While the three
\nparties -- government, House and Bank Indonesia -- have bridged
\ntheir differences on such matters as financial-sector
\nsupervision, financial safety net and the central bank's function
\nas lender of last resort, they remain widely apart regarding the
\nissue of the central bank's accountability.<\/p>\n
The government firmly holds that the 1999 Bank Indonesia Act
\nprovides the board of governors with an excessive degree of
\nimmunity from the processes of accountability normally applicable
\nto other public institutions. It therefore proposed changes that
\nwill allow for the establishment of a supervisory board at the
\ncentral bank.<\/p>\n
However, Bank Indonesia flatly opposed such changes, arguing
\nthat such intervention may compromise the central bank's
\nindependence in setting its monetary stance.<\/p>\n
The government has strong points of arguments. Under the 1999
\nBank Indonesia Act, which provides the central bank with
\nindependence, the board of governors appears to be unusually
\npowerful and yet is subject to lenient procedures of
\naccountability.<\/p>\n
The board determines by itself the remunerations of the
\ngovernor and deputy governors and the central bank's annual
\nbudget and yet it is accountable to nobody.<\/p>\n
The law only requires the board: To publicly disclose, through
\nmass media at the beginning of its budget year, its evaluation on
\nmonetary policies in the previous year and its monetary policies
\nand monetary targets for the following year; to submit a
\nquarterly report to the House on the implementation of its tasks
\nand authority.<\/p>\n
These disclosures are not accountability in the real sense
\nbecause the House does not subject the central bank's reports to
\nany kind of scrutiny. Hence, there has never been a performance
\nevaluation of the board of governors.<\/p>\n
Moreover, the current law seems to vest too much power with
\nthe governor. That is because the governor is the only one that
\nis authorized to nominate candidates for deputy governors and has
\nthe authority to adopt the final decision in case the board of
\ngovernors fails to reach a consensus.<\/p>\n
The government therefore has proposed a checks and balance
\nmechanism through a supervisory board. This board will not be
\nallowed to intervene into the central bank's monetary-policy
\ndecisions but will be charged mainly with ensuring good
\ngovernance responsibility within the board of governors,
\napproving the central bank's annual budget and remuneration of
\nthe board of governors and making annual reports to the House on
\nits appraisal of the central bank's performance.<\/p>\n
The government proposal, we think, would not in anyway erode
\nBank Indonesia's independence. It is simply meant to establish a
\nmechanism to hold the central bank responsible for delivering the
\nagreed objectives. After all, since the central bank operates
\nwith taxpayers' money it should account for the use of the public
\nmoney.<\/p>\n
It is, we think, not sensible for Bank Indonesia's Governor
\nBurhanuddin Abdullah to flatly and entirely reject the proposal
\nto strengthen the procedures of accountability within the central
\nbank. It is simply all right if the scope of responsibility and
\nauthority as well as the job descriptions of the proposed
\nsupervisory board are clearly defined and set from the outset.<\/p>\n
Fundamental requirements to Bank Indonesia's independence are
\nfreedom to set the stance of monetary policies, freedom to refuse
\nto give credits to the government, secured tenures for the board
\nof governors and adequate financial resources to fund its
\noperations. This is the areas where Burhanuddin cannot
\ncompromise.<\/p>",
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"sponsor": "Okusi Associates",
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