Govt seeks House nod to monitor capital inflow

Govt seeks House nod to monitor capital inflow

JAKARTA (JP): The government is seeking legislative approval
to enhance its monitoring of capital flow into and out of the
country, but states it is not backing away from its open capital
account regime.

Minister of Finance Bambang Subianto said on Friday that
better monitoring of the inflow of short-term funds, which are
speculative in nature, was needed to prevent a recurrence of the
devastating financial crisis.

He stressed the open capital account regime would be
maintained despite the plan.

"Maintaining the open capital account regime must be
accompanied by an effective monitoring system so that a proper
monetary management policy can be obtained," he told the House of
Representatives when proposing the bill on the foreign exchange
system.

The bill stipulates that all foreign currency and rupiah
transfers of particular amounts must be reported to Bank
Indonesia through banks or other institutions appointed by the
central bank.

The government has yet to decide the minimum amount which
would require reporting, but Bank Indonesia director Achjar Iljas
said on Friday the equivalent of US$10,000 was being considered.

The bill is expected to be enacted in March.

The country suffered a massive capital outflow in the wake of
the August 1997 rupiah flotation, which caused the local currency
to tumble by more than 75 percent in value against the U.S.
dollar.

Some members of the government have considered following
Malaysia's step to adopt a foreign exchange control system in
September.

The idea has irked the International Monetary Fund, arranger
of a multibillion dollar bailout package for Indonesia.

The government later agreed with the IMF to introduce a
capital monitoring system while maintaining the open capital
account regime.

Bambang said the regime was needed to provide the conducive
investment climate to promote long-term capital inflow to cover
the current account deficit.

"Just like any other developing country, Indonesia has been
suffering a current account deficit problem of between 2 percent
and 3 percent over the past three decades," he pointed out.

The new bill on the foreign exchange system will be enacted
together with the new central bank law, both currently under
House debate.

The proposed law, which amends the existing central bank law,
will create more independence for Bank Indonesia in managing the
country's monetary system. But the central bank governor and
directors are still appointed by the President.

In Friday's deliberation of the bill, the government turned
down the legislature's demand for greater say in deciding the key
figures in the central bank to uphold its independence.

Bambang maintained that the governor and directors of Bank
Indonesia would be appointed by the President.

"Under the new central bank bill there are clauses that will
prevent Bank Indonesia becoming less independent even if its
board of governors is appointed by the President," he said.

He said the President did not possess the right to dismiss the
governor before his term expired, and directors had different
tenures.

The amended central bank law is designed to allow Bank
Indonesia to effectively operate as the country's highest
monetary body -- free from government intervention in
establishing monetary policy -- and in monitoring and supervising
the flow of the payment system.

Under the draft legislation, Bank Indonesia's board of
directors, consisting of the governor and between five and seven
directors or deputy governors, will be appointed by the
President.

Bambang also said the government remained firm on its proposal
to transfer Bank Indonesia's banking supervisory role to a new
independent body by mid-2000 to prevent conflicts of interest
between its lender of last resort role and bank supervisory
function. (rei)