BI opposes plan to set up supervisory board

BI opposes plan to set up supervisory board

Rendi A. Witular, The Jakarta Post, Jakarta

Bank Indonesia (BI) is opposing a plan to set up a supervisory
board for the central bank to boost its accountability, saying
that the proposal lacked clarity.

"The intention of setting up the board is good, but what
happens in Indonesia is that good intentions are usually
transformed into something bad by particular vested interests,"
said Bank Indonesia Governor Burhanuddin Abdullah on the
sidelines of a hearing with the House finance commission.

He said that even if the House decided to approve the plan, it
must make sure that the supervisory board would not intervene in
the management of the central bank and thereby interfere with its
independence.

He said that Bank Indonesia would welcome the board if it was
focussed on improving governance and institutional capacity in
the central bank.

Disagreement over a government proposal to set up the
supervisory board has been one of the main sticking points in the
process of amending Law No. 23/1999 on Bank Indonesia.

Under the proposal, the board would consist of five members to
be nominated by the President and selected by the House, and
would report periodically to the House.

The government wants to include the establishment of the board
in the amendment in order to set up a control mechanism to
supervise and monitor the performance of the central bank's board
of governors. The supervisory board would also have the power to
dismiss members of the board of governors.

The current central bank law makes the position of the
governors almost unassailable, with the result that they are very
difficult to remove. There are only three ways for them to be
replaced: through resignation, disability or tenure expiration.

Burhanuddin strongly disagreed with the proposal to provide
the supervisory board with the power to discharge members of the
board of governors as this could become prone to "misuse by
certain people."

"The duties of the board should be limited to the supervision
of risk management, regulatory compliance and good corporate
governance in the central bank. But these duties are already
being performed by our audit board. So why bother (creating a new
body)," he said.

He added that under the current system, the House and the
Supreme Audit Agency both played supervisory roles.

Meanwhile, lawmakers said that the government and Bank
Indonesia had basically reached agreement on other contentious
issues. The two sides had agreed that the central bank's lender
of last resort role needed to be revived.

They also agreed to set up a Financial Services Authority
(FSA) by 2008.

The FSA would take over the roles of supervising and
regulating the central bank.

Previously the government had demanded that the FSA, which
would oversee the country's financial sector, be set up by 2006,
while Bank Indonesia has said it should only be established in 10
years time, arguing that the banking sector was still weak.