Leave the rupiah alone
For better or for worse, the government's decision to detain Bank Indonesia Governor Sjahril Sabirin on corruption charges on Wednesday may have removed one major element of political uncertainty that has bugged the rupiah over these past few months. As long as the central bank and the government play their cards right, then the latest twist in the power struggle between Sjahril and President Abdurrahman Wahid should be good for the rupiah and the economy.
With Sjahril removed from the board of governors, Bank Indonesia can now focus its attention on restoring monetary stability, restructuring the ailing banking system and strengthening the rupiah. There is still so much to do in fixing the economy that the last thing the central bank wants is to be dragged into a protracted political battle with the government.
The rupiah has already lost about 20 percent of its value since the start of the year; from about Rp 7,000 to the dollar to about Rp 8,700 on Thursday. The plunge of the rupiah has nothing to do with the condition of the economy, but a lot to do with the political situation in the country. And the standoff between the President and Sjahril was a major contributing factor.
Fundamentally in fact, the economy is stronger today than it was six months ago. In normal times, the rupiah would have appreciated, given the rosy indicators of inflation, economic growth and exports we have seen over these last six months. The fact that it has depreciated means that public confidence in the currency has grown weaker because of political uncertainty.
Sjahril and President Abdurrahman must share the blame for politicizing the central bank, and in the process, for undermining confidence in the rupiah.
The President's relentless campaign to unseat the governor, including his use of the carrot-and-stick approach, raises questions of political ethics. Aside from the criminal investigation, his fixation to remove Sjahril borders on intervening in the affairs of the central bank. This is in violation of a 1999 legislation which guarantees Bank Indonesia's independence.
While it is for the court to decide whether Sjahril is guilty or not in the Bank Bali scandal, the governor is already culpable for dragging the central bank into his personal battle with the government. He should know there was no way he could have effectively conducted his job as long as he was facing a criminal investigation, and a politically charged one at that. He further politicized the issue when he secured the support of the House of Representatives and the Bank Indonesia Board of Governors in rejecting the government's calls to stand down.
Sjahril's detention will hopefully put an end to the politicization of the central bank. A lot depends on the future actions of the caretakers of Bank Indonesia and the government.
We hope that the buck stops with Sjahril and that the government's campaign to unseat him was based solely on suspicion of complicity in a criminal case. If that is the only motive, then the government can count on public support. But if there were other hidden agenda behind the campaign, for example, to replace Sjahril with someone more subservient to the government, then we will never see the end of the conflict.
The nation is still far from removing all the elements of uncertainty which undermine public confidence in the rupiah. There are many other major political factors which have brought the rupiah's value far below its real worth. This is all the more reason for everyone, the government and Bank Indonesia in particular, to work harder. They must now focus on the one thing that matters most to the people in this country: the economy.