Leave the rupiah alone

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.