House approves new bill to boost BI's independence

House approves new bill to boost BI's independence

JAKARTA (JP): The House of Representatives approved on Friday
the new central bank bill designed to boost Bank Indonesia's (BI)
independence and realign its function in the banking industry
into that of a regulatory agency.

BI Governor Sjahril Sabirin said the approval of the bill
would have to be followed by a revision of banking law No.
10/1998 because the new central bank law stipulated that the
central bank would no longer be responsible for banking
supervision starting in 2002.

The 1998 banking law stipulates that banking supervision is
BI's responsibility.

"The banking law will have to be revised soon," he said
following a plenary session of the House.

According to the new central bank law, banking supervision
will be handed over to a new independent body, which the
government has said must be established within two years.

The government plans to propose another law which will be the
legal basis for the establishment of the independent agency. This
agency will be assigned to supervise not only banks but also
other financial institutions, including the capital market,
insurance companies and pension funds.

The government's proposal to remove banking supervision from
BI was the focus of a month-long debate in the House.

Finance minister Bambang Subianto insisted BI no longer be
responsible for supervising banks in order to avoid conflicts of
interest with BI's monetary management responsibilities and its
monitoring and supervision of the flow of payment system.

Many legislators, however, argued it would be much more
effective to maintain bank supervision under the central bank
because of its experience in that area over the past three
decades.

BI was anxious to retain its banking supervisory function and
lobbied the House so strongly that rumors abounded of members of
House Commission VIII for the state budget and finance being
bribed to support the central bank's position.

Sjahril flatly denied the allegations.

The House and the government finally agreed to remove the
central bank's supervisory role by 2002, two years later than
proposed by the government.

The new central bank law will replace the 1968 law which has
been blamed for Bank Indonesia's vulnerability to government
intervention and pressures from politically well-connected
businesspeople.

Under the new central bank law, BI will be run by a governor
and deputy governors who will be appointed by the president with
the approval of the House.

Ichsanuddin Noorsy, a legislator from the ruling Golkar
faction, said the House would have the right to reject candidates
submitted by the president.

He added that the central bank would be required to meet
regularly with the House to review important developments in the
country's monetary condition and BI's policies.

Legislator Daniel Tanjung of the United Development Party said
the central bank should no longer succumb to outside intervention
in its monetary policy.

"The central bank is now legally empowered to fend off outside
intervention," Tanjung said.

Separately, House Commission IV for public works and public
housing agreed on Friday to accept a final draft of the bill on
construction service, which is expected to be approved by the
House on April 22.

The construction bill stipulates, among other things, that a
construction failure is the responsibility of the contractor
during the first 10 years after the completion of construction
work.

The bill also stipulates the public can sue a contractor for
damages. (rei)