House seeks greater say in deciding BI's key staff

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)