Panel rejects plan to dismiss BI chief

Panel rejects plan to dismiss BI chief

JAKARTA (JP): An independent panel set up to review the
government's proposed amendment of the central bank law has
rejected the proposal to dismiss the current Bank Indonesia board
of governors.

The government had proposed that Bank Indonesia Governor
Sjahril Sabirin and his deputies should immediately resign after
the amendment of the central bank law had been approved by the
House of Representatives. The proposal was contained in the so-
named Article 75.

But the panel said in its report, released here on Wednesday,
"We believe this would be a serious mistake and would create the
strong impression that, whenever Bank Indonesia became unpopular
with the legislature or government, the law could be changed to
dismiss the management.

"(This) would certainly not encourage confidence in the
ability of the central bank to implement monetary policy free of
political influence and would invite a negative and unhelpful
reaction in the financial markets," the panel concluded.

The government agreed to set up the panel after the IMF
stalled late last year the disbursement of its latest US$400
million loan tranche to the country, partly due to concern over
the amendment of the central bank law. The panel comprised former
Bank Indonesia director Boediono, legal banking expert Sutan Remy
Sjahdeini, Chile's former central bank governor Roberto Zahler
and Reserve Bank of New Zealand Chairman Don Brash.

The IMF has insisted that the government must follow the
recommendations of the panel to allow the disbursement of the
fund's loan to the country. The disbursement of the IMF money is
seen as a crucial factor to help revive investor confidence and
allow the country to obtain new loans from other major lenders
and the sovereign debt restructuring facility from the Paris Club
of creditor nations.

The government had earlier agreed to revise the 2001 state
budget, to take difficult measures including the raising of fuel
prices, and to postpone the plan to issue bonds backed up by gas
sales, as demanded by the IMF.

But several government officials have said that the proposed
Article 75 was non-negotiable.

The government had argued that amending the existing central
bank law was necessary to improve the accountability of Bank
Indonesia, following the alleged mismanagement of billions of
dollars in emergency loans extended to troubled banks between
1998 and 1999.

But critics said that the move was merely to accommodate the
wish of President Abdurrahman Wahid to dismiss Sjahril from his
current position.

Meanwhile, the IMF reminded the government again on Wednesday
to follow the recommendations of the panel.

"We're not defending in any way the existing board ... we're
holding out on this ... simply because the independence of the
central bank in the future would be jeopardized," International
Monetary Fund Indonesia representative, John Dodsworth, told
Reuters.

"It really is the outstanding issue keeping talks from
resuming straight away," he added.

The current Bank Indonesia law, approved in May 1999, enabled
Bank Indonesia to become independent for the first time. With its
independent status the president could no longer dismiss the Bank
Indonesia governor before his or her term ended unless he or she
had been proven to have committed a crime or was incapacitated.

Sjahril, who has rejected calls from Abdurrahman to resign, is
currently facing the prospect of trial in court over his alleged
involvement in the high profile Bank Bali scandal.

Elsewhere, the panel recommended an accelerated judicial
process to deal with the concerns relating to several members of
Bank Indonesia's board of governors.

The panel also noted that the current central bank law lacked
proper measures to ensure that the Bank Indonesia board of
governors would be accountable for its actions.

The panel criticized the fact that the nomination of seven of
the nine board members had been initiated by the central bank
governor.

The panel also suggested that the sole objective of the
central bank should be to maintain price stability, which is less
specific, compared with its role as defined under the current
law: curbing inflation and maintaining the exchange rate of the
rupiah.

"But as a great many other central banks have discovered,
these are two quite separate objectives: they cannot be achieved
simultaneously other than by sheer luck," the panel reasoned.
(rei)