Central bank bill doesn't guarantee accountability

JAKARTA (JP): The Econit Advisory Group, a think tank that concentrates on economic problems, criticized the government's central bank bill for its lack of clear-cut provisions to guarantee Bank Indonesia's accountability and transparency.

Econit director Rizal Ramli said on Thursday that without these two elements, a more independent Bank Indonesia (BI) would be highly vulnerable to corruption.

"Independence without accountability would make BI like a state within a state," Rizal told reporters.

The draft law, submitted by the government to the House of Representatives earlier this month, does not say who the central bank's directors would be accountable to, he said.

"The board of governors is required by the bill only to report to the President and the House of Representatives every three months. But the draft law does not clearly stipulate to whom it should be accountable and what the consequence would be should its report not be approved," he said.

To ensure transparency, the central bank must be bound by disclosure requirements like those imposed on publicly listed companies, Rizal said.

It should be required to report to the public its financial indicators such as monetary targets, realization of these targets and other developments, he said.

Rizal expressed skepticism about the bill's stated intention of creating a fully autonomous central bank, as the bank's governor and deputies will still be appointed by the President.

This could leave an opportunity for government intervention, he said.

"If the governor and his deputies are appointed by the President, we're worried that the President would put 'his people' in these key positions as the previous president has done," he said.

Rizal said that for the appointment process to be more credible, it must involve the House of Representatives.

"Either the president proposes and the House approves or vice versa," he said.

But Rizal said that even an independent central bank needed some sort of controls.

He criticized a clause in the draft that stipulates that the BI governor and deputy governors cannot be dismissed by the President, except if they resign or are proven guilty of criminal acts.

Rizal said the governors and deputies should be liable to dismissal if they perform poorly.

He urged the government to clarify the central bank's function in the draft legislation, including the safeguarding of the rupiah and price stability.

"The rupiah's stability will not necessarily have a positive impact on the economy if prices are not also relatively stable," he said.

Rizal also questioned the effectiveness of the government's plan to free BI from its current task of supervising the country's banks and to establish a new body to oversee the banking system.

If BI no longer supervises the banks, it could lead to contradictory monetary policies, he cautioned.

Should the government insisted on this plan, it should ensure that the new supervisory body would also oversee non-bank financial institutions such as multifinance companies, insurance companies and the capital market, he said.

Most importantly, he said, the new bank supervisory agency must hire personnel from the central bank with integrity and high technical competence.

Rizal suggested that the government also establish a mechanism to coordinate monetary policies and banking policies. (das)