President Habibie ratifies new central bank law

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)