BI to retain its supervisory grip

JAKARTA (JP): The government and the House of Representatives principally agreed on Monday to retain Bank Indonesia's banking supervisory function until the end of 2002, paving the way to the resolution of a key obstacle to a new central bank bill.

The chairman of the House's special team to deliberate the central bank bill, Tayo Tarmidi, said the banking supervisory role would be handed over from the central bank to a new independent body after 2002.

He said the new body would supervise banks and all financial services which manage public funds such as pension funds, insurance and leasing firms and the capital market, effectively eliminating the Capital Market Supervisory Agency.

"This is the result of our private meeting with the government," he told reporters after meeting with Finance Minister Bambang Subianto and Bank Indonesia Governor Sjahril Sabirin.

Bambang told reporters separately that the new body would form one of the three "pillars" of a reformed financial system.

"In the future we will have three pillars: the monetary system handled by Bank Indonesia, the fiscal sector handled by the Ministry of Finance, and the financial services sector under the new body," he said.

Tayo added that the new independent body would be responsible to both the country's Supreme Audit Agency and the House of Representatives.

The House is scheduled to approve the new central bank bill on April 16 at a plenary session.

The government and the House have been debating for a month the new central bank bill, designed to boost Bank Indonesia's independence, and faced a deadlock over a proposal to hand over the central bank's banking supervisory role to a new agency by the middle of 2000.

The House insisted that the banking sector should continue to be supervised by Bank Indonesia, while the government proposed a separation of the role, allowing the central bank to concentrate on designing monetary policy and monitoring the flow of payments.

Separately, the chairwoman of the Federations of Domestic Private Banks, Gunarni Soeworo, said on Monday it would not make much difference whether the supervisory function was retained by the central bank or handled by a new independent body.

She stressed that what matters is the effectiveness of the supervision.

The deputy chairman of the federation of national private banks (Perbanas) Wibowo Ngaserin said, "I think what's more important is good governance".

A banking analyst with a securities firm said that as the bank supervisory function would have a "policeman's role" to ensure that the country's banking population doesn't violate the banking regulations, it must maintain public credibility by showing that no well connected businessmen can meddle with its work.

Bank Indonesia has lost its credibility as its decisions have been frequently undermined by political intervention, particularly with the delay of banking closures in February, which raised speculation that powerful people had worked to prevent certain banks from going down.

The weekly Kontan reported in its latest edition that the central bank had paid about Rp 60 billion (US$6.8 million) to House members to keep the banking supervisory role within the central bank.

In a joint conference with the House's special team on the central bank bill on Monday, Sjahril flatly denied the report.

"It's absolutely not true. It's slander," he said, adding that such a report was detrimental to government confidence-building efforts. (rei)