Change of BI board of governors a must: Rizal

Change of BI board of governors a must: Rizal

JAKARTA (JP): The Indonesian government's steadfast demand to
have the current Bank Indonesia board of governors resign
immediately after the enactment of the new central bank law could
further worsen the country's relations with the International
Monetary Fund.

The IMF has given its full support to the recommendation from
the international panel of experts on the amendment of the
central bank law that Article 75 of the proposed changes be
dropped to secure Bank Indonesia's independence.

The proposed Article 75 stipulates that the current Bank
Indonesia board of governors (Sjahril Sabirin and his deputies)
shall immediately resign after the amendment of the central bank
law has been approved by the House of Representatives.

The IMF fully shares the panel's view that the provision would
be a serious mistake and would create the strong impression that
whenever Bank Indonesia became unpopular with the legislature or
government, the law could be changed to dismiss the bank's
management.

While the government has adopted almost all of the panel's
recommendations, it remains steadfast in its demand that this
particular clause be retained in the amended law.

But the IMF has insisted that the government must follow all
the recommendations of the panel to allow a new disbursement of
its US$5 billion bailout fund for Indonesia to go ahead.

Rizal has argued that after the Supreme Audit Agency had
discovered so many gross mistakes and wrongdoings committed by
the present board of governors there was no point in maintaining
them in their present positions.

"If you want to change the system, you should also change the
persons," he said on Friday.

But many analysts have said that the move (on the board of
governors) was merely designed to accommodate the wishes of
President Abdurrahman Wahid to dismiss Sjahril Sabirin who was
responsible for closing two insolvent banks partly owned by
Abdurrahman's Nahdatul Ulama organization.

The IMF reminded the government again on Wednesday to follow
the recommendations of the panel, especially regarding Article
75.

"We're not defending in any way the existing board ... we're
holding out on this ... simply because the independence of the
central bank in the future would be jeopardized," International
Monetary Fund Indonesia representative John Dodsworth told
Reuters.

"It really is the outstanding issue keeping talks from
resuming straight away," Dodsworth added.

Rizal cited the Supreme Audit Agency's findings on the Bank
Bali scandal, the misappropriation of billions of dollars in
emergency liquidity credits between 1998 and 2000, and the misuse
of $1.2 billion in loans by Bank Indover in the Netherlands, a
subsidiary of Bank Indonesia.

* Only 9 percent of the Rp 129 trillion in emergency liquidity
support extended by Bank Indonesia was secured with legally-
verified securities (collateral)

* Rp 84 trillion of that amount had allegedly been used not
for defending monetary stability during the financial crisis but
had been misused by bank directors and owners for speculation on
the foreign exchange market, thereby accelerating the rupiah's
collapse.

* The equivalent of $2 billion of the emergency liquidity
support was misused by bank owners for loans to affiliated
companies.

"And all of this took place right under the eyes of the IMF,"
Rizal said.

He wondered whether the IMF would have adopted a similar
stance if such grave mistakes and wrongdoings were committed by
the board of governors of the American Fed (central bank).

Dipo Alam, Rizal's deputy who acts as the government
representative in the House deliberations on the proposed
amendments said on Friday that Article 75 would only be a
transitional clause.

Anyway, he added, what is the point of maintaining the current
Bank Indonesia board of governors since five of them had tendered
their resignations and two have completed their terms.

Dipo dismissed the notion that the clause would impair Bank
Indonesia's independence, pointing out that the government could
not dictate to the House to amend the law as it wished.

He was convinced that clause in question would be used only
once.

He added that a change in the board of governors would also be
necessary because the new central bank law would reduce the
number of board members from the present nine to only five, and
the board of governors would be changed into the council of
governors.

Dipo said the council of supervisors which would be created
under the new central bank law would be effective enough to keep
the council of governors on their toes and to ward off government
intervention.

Moreover, he added, a new board (council) of governors would
be required because the new central bank law would change Bank
Indonesia from what he called a goal-model into an instrument-
model central bank. (vin)