Govt urges House to quickly complete amendment of BI law

Govt urges House to quickly complete amendment of BI law

The Jakarta Post, Jakarta

The government urged on Friday the House of Representatives to
quickly approve the proposed bill on the amendment of the central
bank law because a further delay would cause a costly set back in
other key financial sector reform programs.

"If the amendment of the central bank law is delayed, other
programs would also be affected," Director General of Financial
Institutions of the Ministry of Finance was quoted by detik.com
as saying.

The government and the House's special committee have been
debating the bill on the amendment of Law No. 23/1999 on Bank
Indonesia for two years now. The snail's pace process was mainly
due to strong opposition from the central bank over the proposed
contents of the bill.

The deliberation was supposed to be completed on Thursday, but
as the central bank continued to oppose certain key issues, the
House committee decided to extend the deliberation process for an
indefinite period of time. The current House sitting is scheduled
to end on Sept. 26 and to resume in late October.

Darmin hoped the House could complete the amendment process by
the end of this year.

He explained that without the completion of the bill, the
government could not proceed with other key financial sector
reform programs, among others, a gradual termination of the
costly blanket guarantee program and setting up an insurance
deposit scheme.

Darmin said that the government was hopeful that if a new
central bank law could be approved by the end of this year, the
government could start the gradual elimination of the blanket
guarantee program next year.

The blanket guarantee program was introduced in 1998 when
confidence in the banking sector was at a low. Under this
program, the government guarantees all obligations of closed down
banks.

The government now intends to gradually stop the guarantee
program because it is costly and creates moral hazards for banks.
Under this plan, the government will stop its guarantee on bank
obligations except on time deposits, saving accounts and
interbank loans. The government expects this step to be realized
in June 2004. The second phasing out stage would only guarantee
time deposits sized at no more than Rp 100 million, and this is
expected to materialize in January 2005. By this time, the
government expects that the law on the establishment of an
insurance deposit scheme -- which will replace the government's
blanket guarantee program -- will already be approved by the
House.

But this program may be further delayed as the central bank
continues to oppose the government's proposals. Bank Indonesia,
for instance, has strongly opposed a proposal to set up an
independent supervisory board, particularly if the board is
authorized to assess the Bank's monetary policies and can
recommend the dismissal of members of the board of governors.

The Ministry of Finance has said that the supervisory board is
crucial to ensure accountability and improve corporate governance
of the central bank.

Another controversial issue is the disagreement over a plan to
set up a new agency called the financial services authority
(FSA), which will take over Bank Indonesia's role in supervising
and regulating the banking sector. The central bank is less than
happy with the proposal.