Govt close to agreement with IMF over BI law

JAKARTA (JP): The government is close to an agreement with the International Monetary Fund over the disputed amendment of the central bank law, according to a senior government official.

Dipo Alam, an assistant to the coordinating minister for the economy, said on Friday he had just completed talks with visiting IMF official Barry Johnston over the Bank Indonesia law amendment, and the two managed to come to an agreement on certain issues.

"On Article 58A, there is an agreement with the IMF, although it is still subject to the approval of the House of Representatives," Dipo said at his office.

He also said the government was considering revising controversial Article 75 of the amendment to try to accommodate the wishes of the IMF.

"We are currently formulating a new article (to replace Article 75)," Dipo said.

He added that the IMF acknowledged that the government had adopted most of the recommendations made by a panel of experts set up by the government and the IMF to review the government's proposed bill.

An agreement with the IMF over the Bank Indonesia law would pave the way for the disbursement of the fund's next loan tranche to the country, which was delayed late last year.

The IMF money is seen as key to reviving investor confidence in the ailing economy and to encouraging other multilateral institutions to provide financial support, particularly the restructuring of some US$2.7 billion in sovereign debt maturing this year with the Paris Club of creditor nations. Restructuring this debt is crucial to the 2001 state budget.

Article 58A of the proposed amendment of the Bank Indonesia law outlines the functions and duties of the Bank Indonesia supervisory board, a new body that would supervise the central bank's board of governors to increase its accountability.

Dipo said that under the government's proposal, the supervisory board could recommend to the House the dismissal of any member of the board of governors for failing to perform their duties.

"But the IMF has made some recommendations on this subject," he said, adding that he could not disclose what the recommendations were because they first had to be discussed with the House special team handling the amendment of the Bank Indonesia law.

"We'll resume our meeting with the House special team on Tuesday," said Dipo, who leads the government team discussing the proposed amendment of the central bank law.

Asked when the government would complete the talks with the House, Dipo said he could not force the legislators to move quickly as they had many other important duties.

Article 58A is a new issue raised by the IMF. Earlier, the fund urged the government to adopt all of the recommendations made by the panel of experts. In particular, the IMF wanted the government to scrap Article 75, which stipulates that the current Bank Indonesia board of governors should resign once the amendment was approved by the House.

But the panel said Article 75 was a mistake as it could allow the government to fire unpopular members of the Bank Indonesia board of governors simply by amending the Bank Indonesia law.

There was some suspicion the government proposed the amendment with the intention of firing Bank Indonesia Governor Sjahril Sabirin and his deputies.

President Abdurrahman Wahid has persistently called on Sjahril to step down from Bank Indonesia, which became an independent central bank following the approval of the current Bank Indonesia law in May 1999.

The government argued that the current board of governors must step down following a report by the Supreme Audit Agency that there was major abuse of the Rp 144.5 trillion in liquidity support channeled by Bank Indonesia between 1998 and 1999 to help ailing banks survive runs by depositors.

Dipo said dropping Article 75 depended on what happened with Article 58A. "Article 75 is very closely linked with Article 58A."

The IMF is expected to send a team to Jakarta to draft a new letter of intent (LoI) with the government once the dispute over the Bank Indonesia law has been settled.

The LoI is basically a set of economic reform programs to be implemented by the government within a certain period of time. The IMF will disburse its next loan tranche to the country once it has approved the LoI.

Dipo said the government would focus on programs to strengthen and stabilize the ailing rupiah in the next LoI.

"We want to ask the IMF and Bank Indonesia what their programs are to strengthen the rupiah," Dipo said. (rei)