IMF defends BI management: Winters

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)