The central bank saga<\/p>\n
The House of Representatives failed to select three new deputy
\ngovernors of the central bank out of the nine candidates put
\nforth early this year by Bank Indonesia Governor Sjahril Sabirin.
\nThis means that Bank Indonesia will have to do with only four
\ndeputy governors at a time when its work burden is steadily
\nincreasing amid the worsening economic crisis as the House will
\nnot return from its current recess until late next month.<\/p>\n
One may again attack the House for lacking a sense of urgency
\nin dealing with the economic crisis. However, further analysis
\nshows that this episode could simply be yet another twist of
\nevents to the saga of the central bank that started last year.<\/p>\n
Bank Indonesia was on the verge of insolvency mid-last year
\nafter the government refused to recognize the equivalent of
\nseveral billion of dollars in emergency liquidity credits the
\ncentral bank injected into the banking system at the height of
\nthe financial crisis between late 1997 and early 1998. Only a
\nlast-minute political compromise between the government and the
\nHouse of Representatives saved the central bank from technical
\nbankruptcy.<\/p>\n
Another major blow hit the central bank in June last year when
\nSjahril was named a suspect in a corruption case related to the
\nBank Bali scandal, upon which he was immediately detained. When
\nSjahril was released early last December he immediately returned
\nto his job, even though he was to face trial at the South Jakarta
\nDistrict Court.<\/p>\n
Frustrated by its inability to replace Sjahril, despite his
\nalleged involvement in the scandal, the government last November
\nproposed amendments to the 1999 central bank law that currently
\nprovides tenure security to the board of governors. However, the
\nHouse balked at the proposed amendments, arguing that it was not
\nworthwhile changing the law only to enable the government to
\nreplace the board of governors. The International Monetary Fund
\nalso opposed the planned amendments, warning that they could
\ncompromise the political independence of the central bank. The
\nproposed amendments remain pending at the House.<\/p>\n
This episode was followed by the resignation of five deputy
\ngovernors in mid-November to take moral responsibility for the
\nemergency credit controversy, although they remained at their
\njobs.<\/p>\n
Bizarre? Not in Indonesia, which has been mired in a
\nmultidimensional crisis since early 1998 because of the
\ncomplications of the economic crisis and the transition from
\nthree decades of authoritarian government to democracy and from
\nstrong-handed, centralized government into regional autonomy.<\/p>\n
It is business as usual. Sjahril, despite his status of being
\na defendant, appears to be functioning normally at work. He has
\nnot shown any sign of being demoralized.<\/p>\n
We are nevertheless not comfortable with how the government
\nand the House have been treating the central bank, which is
\nsupposed to be the bedrock of the monetary system, the guardian
\nof monetary policy and the arbitrator of the financial system.
\nFormer president Abdurrahman Wahid never met with Sjahril after
\nthe latter's release from detention. Nor has President Megawati
\nSoekarnoputri since her installation in late July.<\/p>\n
Despite his status of being a defendant, Sjahril deserves the
\ntreatment accorded to a governor of Bank Indonesia, until the
\ncourt proves his guilt. We should let the court decide on the
\ncase and not treat him as a perceived corrupter. After all, the
\ncase against him appears very weak now, particularly since all
\nthe primary defendants in the Bank Bali corruption case -- Bank
\nBali directors and several businessmen associated with the Golkar
\nParty and officials of the Indonesian Bank Restructuring Agency
\n-- have been acquitted of all charges by the court. Likewise, not
\neven a single banker has been tried in relation to the alleged
\nabuse of Bank Indonesia's emergency liquidity credits.<\/p>\n
Continued derisive treatment of the central bank does not help
\nits confidence in setting and managing monetary policies that
\nhave been made increasingly complex by the persistently volatile
\nrupiah.<\/p>\n
Bank Indonesia's basic tasks, as stipulated in the 1999
\ncentral bank law, have been immensely daunting. Because different
\nfrom central banks in most other countries that are tasked only
\nwith either maintaining currency stability or guarding inflation,
\nBank Indonesia is responsible for maintaining the stability of
\nthe rupiah, general price stability (low inflation) and banking
\nsupervision.<\/p>\n
Moreover, the worsening economic condition requires good
\ncooperation, a good flow of information between the monetary and
\nfiscal authorities. But how can good cooperation be possible if
\nthe government and the House constantly perceive the monetary
\nauthority as a corrupt institution?<\/p>",
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"sponsor": "Okusi Associates",
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