The new central bank chief

The new central bank chief

The House of Representatives election of Burhanuddin Abdullah
as the new governor of Bank Indonesia strongly proved that high
morality and integrity were the most important factors assessed
in the interview process of the three candidates that were
submitted by President Megawati Soekarnoputri in February.

That was precisely called for by the 1999 Central Bank Act,
which stipulates, among other things, that the central bank
governor shall possess high standards of morality and integrity.

Burhanuddin, 56, will thus become the first governor of the
central bank that underwent a democratic selection process at the
House since Bank Indonesia became a politically independent
institution in May 1999.

Thirty four, or 64 percent, of the 52-member House Finance and
Banking Commission voted on Monday night for Burhanuddin, a
career central banker, and the other 18 members for Miranda
Swaray Goeltom, currently a deputy governor at the central bank.

Cyrillus Harinowo, though highly respected for his high moral
and impeccable integrity, predictably failed to gain even a
single vote because he was virtually unknown to the major
factions at the House commission.

Miranda, who commands a high degree of popularity thanks to
her role as the articulate spokesperson of the central bank, was
initially tipped as the favored candidate to win the Bank
Indonesia top slot, especially because she was backed by the
single largest faction, the Indonesian Democratic Party of
Struggle (PDI Perjuangan).

However, her chances were hurt over the last few weeks by wide
disclosures of her questionable involvement in businesses and
questionable transactions in Bank Indonesia securities. Her
special questioning by the commission in charge of verifying the
personal assets of state officials (KPKPN) also raised many
eyebrows regarding her probity.

Burhanuddin's appointment will certainly be welcomed by the
market. Even though he was a career central banker, he was never
implicated in any of the scandals and allegations of corruption
and collusion which beleaguered Bank Indonesia during the peak of
the economic crisis in 1997-1999.

During this period, Burhanuddin was a director in charge of
foreign economic relations before he was appointed a deputy
governor in early 2000. He is therefore well-positioned to make a
clean break from the central bank's scandal-tainted past.

His four years of working experience at the International
Monetary Fund executive board from 1989 to 1993 should have
broadened his expertise in global monetary affairs.

His one month stint as the chief economics minister in June
2001, should have provided him with a good opportunity to
understand the operations of the government bureaucratic
machinery, thereby making him more able to manage good
coordination with the fiscal authorities.

Hence, in terms of integrity, technical competence,
managerial capability and leadership, Burhanuddin appears to be
the most qualified to lead the central bank in exercising its
function as the bedrock of the monetary system, the guardian of
monetary policy and the arbiter of the financial system.

Technical competence is indeed crucial for the chief of the
central bank because monetary policy is the most-closely watched
indicator of economic policy, and monetary policy action tends to
have a fairly immediate impact on real economic activities.

In fact, it is the integrity and leadership of its chief that
inspires market confidence in an institution, notably such a
politically independent one like the central bank.

The central bank has thus far performed fairly well, despite
the politically turbulent period it underwent in 2000 when the
current governor Sjahril Sabirin was found guilty of corruption
but was eventually acquitted of all charges by the Supreme Court.

Nevertheless, the challenges facing Burhanuddin are no less
daunting, especially with regard to the urgent need for restoring
the institutional integrity of the central bank. Moreover, unlike
central banks in most other countries which are tasked only with
either maintaining currency stability or guarding inflation
rates, Bank Indonesia is responsible for maintaining the
stability of the rupiah, general price stability (low inflation)
and banking supervision, at least for the next three to five
years.