IMF defends BI management: Winters

JAKARTA (JP): Prominent U.S. economist Jeffrey Winters lambasted on Thursday the International Monetary Fund (IMF) for trying to block the government's plan to amend the central bank law and dismiss the existing board of governors.

Winters, a professor of political economics at Northwestern University in Chicago and an analyst on Indonesia, said that the amendment measure and the demand for the resignation of Bank Indonesia top management was "a reasonable and responsible" response by the government following revelations that billions of dollars had gone "missing" from Bank Indonesia.

He added that the irregularities "happened right under the IMF's nose" which had been closely monitoring Bank Indonesia.

"And yet the IMF has stubbornly defended Bank Indonesia's management against summary removal, even going so far as to suspend a US$400 million loan tranche partly because of this issue," he said at a seminar on politics and the economy in Jakarta.

Winters said that it would be unimaginable for U.S. Federal Reserve Bank chairman Allan Greenspan to remain in office if the Congress discovered that billions of dollars had gone missing from the Bank.

He also criticized the IMF for allowing Bank Indonesia to be given independence in 1999 without a prior audit of the central bank, which had been plagued by massive corruption during the era of former authoritarian president Soeharto.

But former IMF Asia Pacific deputy director Hubert Neiss, who organized the Fund's rescue program in Indonesia from late 1997 until last year, defended the IMF's measures.

Neiss said that it was very important at the time to provide Bank Indonesia with independence to help arrest the hyper- inflation which reached around 70 percent in 1998.

He said that implementing an audit process first would have taken a very long time.

Ideally ... it should have been done the other way around. But in the midst of a crisis you cannot have an orderly sequence," said Neiss, who is now a senior official at Deutsche Bank.

The IMF has become the second master of Bank Indonesia since the fund signed a multi-billion dollar loan package with the country in late 1997.

The IMF helped push through approval of a new central bank law by the parliament in May 1999, during the administration of Soeharto's handpicked successor B.J. Habibie, giving Bank Indonesia the independent status.

But the administration of Abdurrahman Wahid proposed to the legislature in November last year, a bill amending the central bank law following revelations by the Supreme Audit Agency (BPK) that around Rp 138 trillion (US$13 billion) of the Rp 144.5 trillion in emergency loans channeled by Bank Indonesia to ailing domestic banks between 1998 and 1999 had been abused, theoretically leaving the central bank bankrupt.

The government has said that its amendment is needed to improve the accountability of Bank Indonesia. Under the plan, Bank Indonesia governor Sjahril Sabirin and his deputies must immediately resign following approval by the legislature.

But the amendment plan has irked the IMF, which said that it could jeopardize the independence of Bank Indonesia. The fund delayed the disbursement of a $400 million loan tranche to the country, scheduled for release in December last year, partly due to these concerns.

The government then agreed to an IMF demand to form a panel of international and domestic experts to review the proposed amendment. Results of the panel's analysis have yet to be made public.

The IMF special mission is currently in Jakarta trying to reach a new agreement with the government on reform measures, a pre-requisite for disbursement of the $400 million loan installment, which is part of a $5 billion loan promised by the fund to the current administration early last year.

"The IMF stance is adding more damage to an already damaged rupiah and economy. This is unnecessary and cruel," Winters said.

The rupiah dropped to Rp 11,095 per U.S. dollar late on Thursday, from Rp 10,960 on Wednesday, amid domestic political jitters.

But Abdurrahman argued that the current weakening of the rupiah provided further evidence that the Bank Indonesia governor must be replaced.

"The current weakening of the rupiah reflects the fact that the financial market does not accept Sjahril," legislator Habil Marati quoted Abdurrahman as saying after a meeting with the President. (rei)