Govt close to agreement with IMF over BI law

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)