President Habibie ratifies new central bank law

JAKARTA (JP): President B.J. Habibie officially put into force the new central bank law on Monday and renamed Bank Indonesia's board of directors the board of governors.

Habibie appointed Sjahril Sabirin to head the board for a four-year term and named the seven previous directors deputy governors.

The deputy governors are Miranda S. Goeltom, Iwan R. Prawiranata, Aulia Pohan, Subarjo Joyosumarto, Achwan, Achjar Iljas and Dono Iskandar Djojosubroto.

The governor and all deputy governors were sworn in at the State Palace before Chief Justice Sarwata on Monday.

Under the new law, Bank Indonesia governor and deputy governors are appointed by the President with the approval of the House of Representatives but the governor is no longer a member of the Cabinet.

The House, however, is currently in recess.

Speaking at the inauguration ceremony, Habibie said the law would ensure the bank's independence.

"As a central bank, Bank Indonesia has to be independent while pursuing its duties, free from any interference from the government and any other party. But its performance must be accountable," he said.

Pushing through the central bank independence law has been of critical importance for the government and its multilateral lenders. The bank was often viewed as subject to political influence, particularly under the rule of former president Soeharto.

The mission of the central bank should be to achieve and maintain the stability of the rupiah and contain inflation rates, Habibie said.

"It is stated in the law that Bank Indonesia's duties focus on three things: first, to set and implement monetary policy; second, to manage and maintain a fluent payment system and third, to manage and supervise the banking system," he said.

Habibie said the central bank must pursue all its policies in a transparent way to satisfy public accountability demands.

Bank Indonesia Governor Sjahril Sabirin said after the ceremony that the central bank would be responsible to the House and also to the public through its regular weekly, monthly and yearly reports.

Sjahril also said that whoever comes into power after the general election in June, he would remain in the position as the central bank governor for four years.

Notwithstanding the new law, the bank will lose its role as supervisor of banks by the end of 2002, when a new agency will take over.

The new body will supervise banks and all financial services which manage public funds such as pension funds, insurance and leasing firms and the capital market, effectively eliminating the Capital Market Supervisory Agency.

Finance Minister Bambang Subianto has said the new body would form one of the three "pillars" of a reformed financial system: the monetary system handled by Bank Indonesia, the fiscal sector handled by the Ministry of Finance and the financial services sector under the new body.

Habibie said the new law would limit the central bank's role as a lender of last resort, such that it could only provide short-term credit for banks with liquidity problems.

Central bank credit for troubled banks must have a maximum maturity date of 90 days and be supported by "high quality collateral".

Bank Indonesia's duty to provide subsidized credit will be shifted to a state-owned firm, to be appointed by the government in six months.

The government has said this would avoid a conflict of interest between the bank's duty to maintain monetary stability and its supervisory role of the banking sector.

Bank Indonesia is also barred from extending credit to the government to prevent budget financing through money printing, which could endanger the stability of the rupiah. (prb/rid)