Soedradjad market-friendly and consistent

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)