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)