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)