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.