Debate rages on over central bank bill

JAKARTA (JP): The government and the House of Representatives failed to reach an agreement on whether to retain Bank Indonesia's (BI) banking supervisory function in the new central bank bill currently being debated.

House Commission VIII for state budget and finance decided on Tuesday in a debate session with the minister of finance, to take into account the central bank's opinion in a closed-door session.

The government, represented by Minister of Finance Bambang Subianto, adheres to a position that the banking supervisory function should be assigned to another independent body.

Analysts say the supervisory function is crucial as it has a "policing" role to "nail" those who violate banking regulations.

Asked about his views on the topic, BI Governor Sjahril Sabirin said on the sidelines of the debate session that he was not allowed to issue statements concerning the matter outside the meeting room.

The government is proposing a new central bank bill to replace a 1968 law which is criticized as ineffective.

The new law is expected to boost BI's independence, allowing it to effectively operate as the country's highest monetary body, free of government intervention to establish monetary policy and monitor and supervise the flow of the payment system.

Debate on the bill started early this week, with the House expected to pass the bill into law before the end of the month. This would be the second bill on monetary activities submitted this year following the submission of the bill on foreign exchanges flow earlier this year.

Under the proposed law, BI's role in supervising the banking system will be transferred to a new independent body by mid-2000. The motive is to prevent a conflict of interest between the central bank's role as the lender of last resort and its banking supervisory function.

But some legislators insist that retaining the supervisory function in BI would be more effective because the central bank is experienced in overseeing the banking system.

Meanwhile Ferry Hartoyo, head of research at PT Vickers Ballas Tamara, said although the bank supervisory function was usually a central bank role, the purpose could be handled by a new independent institution.

The independent body would only be in charge of supervising the country's banking industry, to ensure banking regulations already stipulated in the new banking law were not violated, he said.

The independent body would simply provide the necessary information for the central bank to design its monetary policy, he added.

"The important thing is to assure the public that the independent body will be credible," he told The Jakarta Post.

"Will well-connected businessmen continue to undermine BI's monetary and banking policies?" he asked.

Bank Indonesia is suffering a loss of credibility, as its decisions have often been undermined by political interventions, emphasized by the recent delay in the announcement of bank closures.

A government announcement concerning liquidation of some 40 banks on Feb. 27 was delayed until March 13, to allow authorities more time to make the correct decision. The delay has angered the International Monetary Fund (IMF).

IMF's first deputy managing director Stanley Fischer criticized Indonesia for what he called a lack of clarity in reporting on its banking reforms.

Some suspect, however, that several well-connected businessmen intensively lobbied the government to prevent their banks from inclusion on the list.

An analyst, who asked for anonymity, said many people would be eager to sit on the banking supervisory body as they could abuse the "policing" role.

He predicted the banking supervisory function would eventually be separated from the central bank, but not within the proposed time frame of mid-2000.

BI's bank supervisory division had been accused of practicing nepotism, collusive and corruption practices in the past to disregard bankowners who violated prudential banking norms. (rei)