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)