Central bank law issue to be reviewed

JAKARTA (JP): A joint panel of international and local experts will start reviewing this week the controversial government- proposed amendment of the central bank law, which seems to be the only remaining major stumbling block to an agreement between the government and the International Monetary Fund.

Dipo Alam, who leads the government team in the discussions on the technical details of the country's economic reform program with the IMF, said that most of the differences with the Fund had basically been settled during recent discussions with the IMF's visiting technical team.

"More than 90 percent of the (new) LoI has been agreed ... We now only have to focus on the panel, which will start working on April 3," he told reporters late last week.

The LoI contains a set of economic reform programs to be implemented by the government in return for the IMF loan.

The four-member panel consists of two international experts, former New Zealand central bank governor Donald Thomas Brash and former Chilean central bank governor Roberto Zahler, and two local experts, former director of Bank Indonesia Budiono and Sutan Remy Sjahdeni, an independent banking law expert who was involved in the drafting of the existing central bank law.

The government proposed a bill to amend the central bank law to the House of Representatives late in November last year, which Coordinating Minister for the Economy Rizal Ramli said was primarily aimed at boosting the accountability of Bank Indonesia, which had been plagued by massive corruption in the past.

But the proposed amendment has caused deep concern among top IMF officials as it could jeopardize the independence of Bank Indonesia.

The IMF delayed the disbursement of its latest US$400 million loan tranche to Indonesia late last year, partly due to disagreement with the government over the amendment plan.

Rizal abruptly halted the passage of the bill through the House in February and rushed to Washington to lobby senior IMF officials. This move ended in a compromise agreement, namely the formation of a panel of international and domestic experts to review the proposed amendment of the central bank law and to provide input.

The House is expected to resume debating the bill in May.

There were several controversial issues in the original government-proposed amendment.

The first was the proposal requiring existing Bank Indonesia governor and directors to effectively resign once the House approved the amendment.

This requirement has only strengthened the view that the proposed amendment was merely an attempt by President Abdurrahman Wahid to oust Bank Indonesia Governor Sjahril Sabirin, raising concerns that the central bank could be easily influenced by the government.

The existing Bank Indonesia Law No. 23/1999 endows the central bank with independence and frees it from government intervention.

The second was the plan to allow Bank Indonesia to resume its function of providing special loans to the government, which is prohibited under the existing central bank law.

Analysts fear that if Bank Indonesia were allowed to channel special loans again, it would make the central bank susceptible to government intervention, particularly if the state budget was in difficulty.

According to the existing law, Bank Indonesia's objective is to achieve and maintain the stability of the rupiah particularly via monetary policy.

The third issue was the plan to allow senior members of political parties to become members of Bank Indonesia's board of governors, raising concern about the loyalty and the integrity of the politicians.

It is not clear whether the panel of experts would only review the main issues or would undertake a comprehensive review of the government-proposed amendment of the central bank law.

Bank Indonesia deputy governor Achjar Iljas has asked the panel to undertake a comprehensive review in order to eliminate "certain interests" attached to the proposed amendment.

Analysts said that once the panel completed its job, it would provide the right conditions for the IMF special mission to visit Jakarta to reach a new agreement with the government, paving the way for the disbursement of the stalled loan.

There has been speculation that the IMF mission could visit Indonesia soon.

The government has recently settled the other two major issues, including the plan to sell the government's stake in the publicly listed Bank Central Asia (BCA) and Bank Niaga in the middle of this year, and the issuance of a government decree banning regional administrations from taking out loans despite the new fiscal decentralization policy.

The IMF money is crucial to reviving the confidence of other international lenders and investors, which is key to curing Indonesia's sick economy. (rei)