The saga of the central bank<\/p>\n
After analyses concluded that the weak central bank fully
\ncontrolled by the government was one of the main culprits of
\nIndonesia's financial crisis in late 1997 and the consequent
\nbanking collapse in 1998, the then B. J. Habibie administration
\nand the House of Representatives worked at full speed to enact in
\nMay 1999 a new central bank law that granted full autonomy
\n(political independence) to Bank Indonesia.<\/p>\n
But the lawmakers overlooked something that was a vital
\nelement inherent in the exercise of autonomy: accountability and
\nperformance standards. This crucial shortcoming now puts the
\nAbdurrahman Wahid administration in an imbroglio over the legal
\nprocess to replace the top management of Bank Indonesia.<\/p>\n
The central bank law does stipulate that the governor and
\ndeputy governors can only be replaced if found guilty of a crime,
\nincapacitated or resigns. This provision is one of the clauses
\nthat safeguards the independence of the board of governors. But
\nas recent developments show, in the absence of clear-cut
\nparameters for accountability and performance standards, this
\nprovision now gives the board of governors a blank check.<\/p>\n
An earlier attempt by the President to force Bank Indonesia's
\ngovernor Sjahril Sabirin to resign over his alleged involvement
\nin the Bank Bali scandal, has been protracted in a legal battle.
\nSjahril, legally still the governor but an inactive one since his
\narrest in June, is under house arrest awaiting trial.<\/p>\n
Failing in its first attempt to oust the governor, the
\ngovernment launched another campaign to make the whole central
\nbank management dispirited with the hope that the board would
\nfind it almost impossible to do their job and decide to quit. But
\neven after acting governor Anwar Nasution and four other deputy
\ngovernors resigned en masse on Friday night after several months
\nof being publicly reviled and denounced as responsible for
\nseveral billions of dollars in state losses from the extension of
\nemergency liquidity loans to ailing banks, the process of
\nappointing a new board of governors remains strewn with legal
\nhurdles because Sjahril and two other deputy governors have
\nrefused to quit.<\/p>\n
It is now clear that the reshuffle can only be made after the
\n1999 Central Bank Law is amended to tie up Bank Indonesia's
\nindependence to clear performance standards and accountability,
\nthereby providing the government with a broader leeway to deal
\nwith underperforming executives or those embroiled in law suits.<\/p>\n
However essential accountability, standards of performance and
\nprofessional conduct are to keep the board of governors on their
\ntoes, we cannot help but suspect that the amendments that are
\nbeing proposed to the House are designed mainly to make it easier
\nfor the government to dismiss members of the board of governors.
\nIf that was the case, the end result of the government-Bank
\nIndonesia battle would be a new central bank under the government
\ncontrol and one that does not possess autonomy in monetary
\nmanagement, a condition very much like the one under former
\npresident Soeharto that caused the financial crisis.<\/p>\n
Right from the beginning when the President began his legal
\nattack on Sjahril in relation to the Bank Bali scandal, we got
\nthe impression that his main objective was not primarily to clean
\nup the central bank and bring the rule of law against those
\nresponsible for the losses in the bailout of ailing banks between
\n1997 and 1999. After all, Sjahril was not the main suspect in
\nthat scandal. In fact all the primary suspects in the scandal --
\nBank Bali directors and several other politically well-connected
\nbusinessmen -- have been acquitted of corruption charges by the
\ncourt.<\/p>\n
The President's main motive seem to be his grudge against
\nSjahril, who was part of the team which decided in 1998 to close
\ndown two insolvent banks closely associated with Abdurrahman,
\nthen chairman of the Nahdlatul Ulama Islamic organization, as
\nwell as his personal ambition to have a man he liked and trusted
\nat the helm of the central bank.<\/p>\n
Likewise, the government's threat to recapitalize or liquidate
\nthe central bank over last year's discovery by the Supreme Audit
\nAgency of alleged improper extension by Bank Indonesia of Rp
\n138.5 trillion in emergency loans and the alleged misuse of Rp 80
\ntrillion of the loans by recipient bankers seem to appear more as
\npolitical pressure to force the board of governors to resign,
\nrather than a genuine attempt to clean up the institution.<\/p>\n
If central bank cleaning and law enforcement were the real
\nobjective, why have thus far, two years after the loan misuse
\ntook place, none of Bank Indonesia officials and recipient
\nbankers implicated in the loan scam been brought to court.<\/p>\n
The House, which is deliberating proposed amendments to the
\ncentral bank law, would be well-advised to realize that giving
\nthe President more control over Bank Indonesia isn't the answer
\nto cleaning up the bank's performance. That even risks
\nsubordinating important financial market decisions to short-term
\npolitical concerns. Anything that reduces the power to be an
\nindependent arbitrator of the financial system is a clear
\nnegative signal to the market.<\/p>",
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"sponsor": "Okusi Associates",
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