House seeks greater say in deciding BI's key staff

JAKARTA (JP): The House of Representatives insisted on Tuesday that Bank Indonesia retain its bank supervisory role and that the House have a greater say in deciding the central bank's key personnel.

The ruling Golkar party argued in a House debate on the central bank bill that maintaining Bank Indonesia's (BI) supervisory role was much more effective than any alternatives, especially since the central bank issues banking licenses and has the necessary resources to act as supervisor.

"Bank Indonesia must retain the role of supervising the banking system," said Golkar spokesman Soedardjat Nataatmadja.

The government submitted to the House last month the bill on the central bank to replace a 1968 law often faulted as no longer effective in governing the rapidly developing banking industry.

The new law is designed to strengthen BI's independence in order to allow it to effectively operate as the country's highest monetary body, free from government intervention in establishing monetary policy and monitoring and supervising the flow of the payment system.

Under the proposed law, BI's role in supervising the banking system will be transferred to a new independent body by mid-2000 to prevent "conflicts of interest".

The House agreed that BI must be given greater freedom, especially because the current financial crisis and collapse of the banking industry was attributed largely to a failure by the central bank, due in particular to government intervention.

United Development Party legislator Hamzah Shodig said that although BI had failed in its bank supervisory role in the past, the role should be maintained to ensure the effectiveness of its monetary policy and its monitoring and supervising of the flow of the payment system.

He cautioned that the banking system could undermine BI's monetary policy as banks could increase liquidity through lending activity, which in turn could raise inflation and lower the value of the rupiah.

The House also demanded a greater say in deciding the central bank's key management team.

Under the draft legislation, BI's board of directors, which consists of a governor and between five and seven directors, called deputy governors, will be appointed by the president.

"How can the central bank be independent if its governor and deputy governors are appointed by the president," asked Indonesian Democratic Party legislator Nico Daryanto.

He suggested that the candidates for governor and deputy governors be selected by the House.

Members of the Golkar faction said that even though BI's governor and directors would be appointed by the president, the candidates should be approved by the House.

They added, however, that the central bank should report to the House, not to the president, and that the country's Supreme Audit Agency should be allowed to audit the central bank.

Analysts earlier lambasted the central bank bill for its lack of clear-cut provisions to guarantee BI's accountability and transparency, contending that without these two elements an independent BI would be highly vulnerable to corruption.

The central bank bill is part of the government's financial and banking restructuring program designed to revive confidence in the ailing sector and to lift the country out of its 18-month- old economic crisis.

The country's first batch of bank recapitalizations was announced last week, but received strong criticism for its lack of transparency, particularly the government's decision to include the privately run Lippo Bank, which received the lion's share of the recapitalization funding, in the first group of banks to be recapitalized.

This raised speculation that Lippo Bank has cozy relations with President B.J. Habibie.

Minister of Finance Bambang Subianto is scheduled to meet the House on Thursday to explain the decision and the entire bank recapitalization program. (rei)