Central bank law issue to be reviewed

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)