The central bank law
The central bank law
The government has finally bowed to international pressure
against hasty amendments to the 1999 central bank law, under
which Bank Indonesia is protected from political interference.
Chief economics minister Rizal Ramli said on Wednesday that the
House of Representatives had agreed to the government's request
to postpone the deliberations of the government-proposed
amendments until mid-May to allow adequate time for the
International Monetary Fund-appointed panel of independent,
foreign and Indonesian experts to review the planned changes to
the law.
The formation of the panel seemed to be the only point of
agreement reached by the government and the IMF when Rizal
visited Washington three weeks ago to mend relations with the
multilateral agency -- relations which became prickly after the
delay in December of the US$400 million third tranche
disbursement of its $5 billion bailout fund for Indonesia.
The postponement of the House deliberations and the
government's acquiescence to wait for recommendations from the
expert panel will hopefully eliminate the great concerns among
the IMF, World Bank and analysts about the independence of Bank
Indonesia if the amendments were hastily approved by the House.
The IMF in January joined the chorus of domestic critics who
saw the government-proposed amendments to the central bank law
mainly as an attempt to give the government broader leeway to
intervene in Bank Indonesia's affairs, including replacing its
board of governors.
The controversy over the planned amendments then became a bone
of contention between the government and the IMF, in addition to
the privatization of two nationalized banks, fiscal
decentralization and the slow pace of asset recovery by the
Indonesian Bank Restructuring Agency (IBRA).
Even though the government claimed when proposing the
amendments in November that the changes were aimed mainly at
cleansing the central bank of corrupt officials and at
establishing clear-cut parameters for performance and
accountability, many cannot help but conclude from the draft
amendments that the board of governors, notably Governor Sjahril
Sabirin, is actually the main target.
Events preceding the government initiative to amend the
central bank law did not lend any credence to the stated motive
of the move. President Abdurrahman Wahid's controversial attempt
in early 2000 to get the central bank governor fired, the
government's threat to liquidate the central bank over alleged
malfeasance in the extension of several billions of dollars in
emergency liquidity loans in 1998 and 1999, and the manners in
which the government tried to bulldoze the amendments through the
House for approval, all smacked of a vendetta against Sjahril.
Even Abdurrahman's four international advisers who called on
him in Jakarta in mid-February strongly recommended that the
proposed amendments be dropped.
The advisers, like the IMF, World Bank and all analysts, fully
agreed that the central bank should be subject to high standards
of accountability for decision-making and management. But many
articles in the proposed amendments, instead of reinforcing the
central bank's independence, would make it highly vulnerable to
partisan politics and government interference.
The role of a strong, independent central bank as the guardian
of monetary policy and an arbitrator of the financial system is
even more imperative now when the weak government under the
erratic leadership of the embattled President Abdurrahman is
prone to take populist measures at the expense of sound
macroeconomic stability.
Hopefully, now that the thorny issue of the central bank law
has been resolved and the sales of Bank Niaga and Bank Central
Asia have been definitively scheduled, the IMF will soon start
reviewing the September 2000 reform package so that the next set
of reform measures can be set in place.
Indonesia urgently needs an IMF-supported reform package to
provide the market with a clear economic policy directive amid
the current tumultuous political condition in the country.