Jonathan Thatcher
Globe and Mail
April 9, 2001

Indonesia insists on a key change to the central bank law allowing it to fire the entire board, setting itself on a possible collision course with an already frustrated International Monetary Fund.

Controversial changes the government wants to the law governing its central bank have put it at loggerheads with the IMF, which has delayed additional funding since late last year over this issue and other key economic reforms.

“Article 75 is non-negotiable,” Attorney-General Marzuki Darusman said late Saturday, saying the IMF was overstepping itself by insisting this be dropped.

Article 75 stipulates that the whole board of Bank Indonesia resign once the new law takes effect.

Refusal to give in on this issue comes just days before the arrival of a long-awaited mission from the IMF in Jakarta to review progress over economic reforms and pave the way for $400-million (U.S.) in new loans, held back as the Fund has tried to force Indonesia’s government to commit to reforms.

The IMF last week agreed to send the mission because Indonesia had met its conditions for the visit, including setting up an independent panel to review the proposed amendments.

The panel — including the central bank governors of Chile and New Zealand — was to complete yesterday almost a week of discussions on the changes and will pass its conclusions to the IMF and the government.

The IMF’s Indonesia representative, John Dodsworth, said he was still waiting to see the panel’s conclusions.

Mr. Marzuki argued that the board of the central bank, most of whose members took up their posts under the corrupt regime of former president Suharto, had to take responsibility for billions of dollars lost in cheap credits to bail out domestic banks at the height of the Asian financial crisis which erupted in 1997. Much of that money appears to have vanished.

But the proposed changes to the law have been glued to political controversy, with some suggestions that President Abdurrahman Wahid was using them to exact revenge on the central bank governor with whom he has clashed over personal issues.

The governor, Syahril Sabirin, is currently on trial over unrelated corruption charges but only parliament can fire him under laws introduced a little over a year ago to give the central bank independence for the first time from the executive.

Mr. Sabirin insists he is innocent and has refused to resign. Several of his deputies quit early this year but have continued in their jobs until replacements are named.

“Six hundred and thirty-five trillion rupiah ($58.52-billion) was lost over five years. This has got to be accounted for. [Article 75] would be an elegant way out,” Mr. Marzuki said, referring to the losses from the so-called liquidity credits the central bank pumped into commercial banks in what turned out to be a largely futile effort to stop the banking sector’s collapse.

Indonesia is now faced with one of the largest bank bailouts in history.