Soedradjad market-friendly and consistent
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono suddenly leaves his office as the country's economy is sinking due to the rupiah meltdown.
Financial market players have reacted with surprise by President Soeharto's decision to sack Soedradjad when the governor's official tenure would actually conclude by the end of this month.
The move follows similar dismissals of four Bank Indonesia directors in late Dec. 1997. This is the second time that Soeharto has sacked a minister-level official before his tenure ended. In Dec. 1995, Soeharto fired Satrio Budiardjo Joedono as trade minister.
There are no clear explanations behind Soedradjad's removal. Minister/State Secretary Moerdiono, when announcing the dismissal, only said that Soedradjad had borne very hard duties during his tenure.
Soedradjad, when asked by reporters earlier Tuesday after a meeting with Soeharto whether he had resigned, simply said: "No, no."
Soedradjad, a U.S.-trained economics professor, was sworn in as governor of the central bank in March 1993 after he served as a junior trade minister for five years from 1988.
Before being appointed a junior trade minister, Soedradjad had assumed several governmental posts, including an assistant to the coordinating minister of economy and finance, an expert for the monetary council and head of the monetary and state finance bureau at the National Development Planning Board (Bappenas).
Some analysts have said Soedradjad came to lead the central bank at a wrong time, when problems in the banking industry had become acute.
He has been noted for his determination to strengthen the banking industry by improving and enforcing prudential regulations.
Two months after assuming his position as central bank governor, Soedradjad improved the 1991 prudential regulations, including those on capital adequacy ratios, allowances for bad loans, loans to deposit ratios and legal lending limits.
From early 1995, Soedradjad issued various regulations designed to promote sounder banking practices, increase the degree of disclosure, establish self-regulating banking and establish guidelines for internal audits and the use of information systems.
Soedradjad, the son-in-law of senior economist Soemitro Djojohadikusumo, also improved requirements for banks conducting foreign-exchange activities.
But some banking analysts blamed Soedradjad for his slow actions regarding problem banks. Only after being forced by the International Monetary Fund, Soedradjad, together with Minister of Finance Mar'ie Muhammad, closed 16 insolvent banks last November.
The closure of the 16 banks provoked public panic. People then transferred their savings from local private banks to state banks or foreign banks due to a loss of confidence in domestic private banks.
The deepening banking crisis prompted the government to guarantee all deposits and liabilities of local banks.
Following the guarantee, Soedradjad early this month required commercial banks to hold a minimum capital of Rp 1 trillion (US$105 million) by the end of this year, Rp 2 trillion by 2000 and Rp 3 trillion by 2003.
On the monetary front, Soedradjad was known to be a market- friendly policymaker. He always used what he termed as market- friendly instruments to achieve his aggregate targets.
The instruments normally used by Soedradjad to influence the supply and demand for money included open market operations, reserve requirements, moral persuasion, interest rate policy and exchange rate policy.
Even when the rupiah was under heavy speculative attacks in early July, Soedradjad tried to stick to those market-friendly instruments including defending the moving band system by widening the band from 8 percent to 12 percent and selling dollars both in the spot and swap market.
After all efforts failed to arrest the rupiah fall, Soedradjad, along with Minister Mar'ie, finally floated the rupiah on Aug. 14.
The move, Soedradjad said, should not have surprised the market as he had expand the band several times from only 2 percent to as wide as 12 percent.
When the government announced it plans to introduce a currency board system, which would peg the rupiah to a fixed rate with a certain hard currency, some sources said Soedradjad opposed the idea because it was not market-friendly. (rid)