JP: Govt seeks House nod to monitor capital inflow (fwd)

[Robert Weissman <rob@essential.org>]

Jakarta Post
Saturday, February 13, 1999
Govt seeks House nod to monitor capital inflow

Minister of Finance Bambang Subianto said on Friday that better monitoring
of
the inflow of short-term funds, which are speculative in nature, was needed
to
prevent a recurrence of the devastating financial crisis.
He stressed the open capital account regime would be maintained despite the
plan.
"Maintaining the open capital account regime must be accompanied by an
effective monitoring system so that a proper monetary, management policy
can
be obtained," he told the House of Representatives when proposing the bill
on
the foreign exchange system.
The bill stipulates that all foreign currency and rupiah transfers of
particular amounts must be reported to Bank Indonesia through banks or
other
institutions appointed by the central bank.
The government has yet to decide the minimum amount which would require
reporting, but Bank Indonesia director Achjar Iljas said on Friday the
equivalent of US$10,000 was being considered.
The bill is expected to be enacted in March.
The country suffered a massive capital outflow in the wake of the August
1997
rupiah flotation, which caused the local currency to tumble by more than 75
percent in value against the U.S. dollar.
Some members of the government have considered following Malaysia's step to
adopt a foreign exchange control system in September.
The idea has irked the International Monetary Fund arranger of a
multibillion
dollar bailout package for Indonesia.
The government later agreed with the IMF to introduce a capital monitoring
system while maintaining the open capital account regime.
Bambang said the regime was needed to provide the conducive investment
climate
to promote long-term capital inflow to cover the current account deficit.
"Just like any other developing country, Indonesia has been suffering a
current account deficit problem of between 2 percent and 3 percent over the
past three decades," he pointed out.
The new bill on the foreign exchange system will be enacted together with
the
new central bank law, both currently under House debate.
The proposed law, which amends the existing central bank law, will create
more
independence for Bank Indonesia in managing the country's monetary system.
But
the central bank governor and directors are still appointed by the
President.
In Friday's deliberation of the bill, the government turned down the
legislature's demand for greater say in deciding the key figures in the
central bank to uphold its independence.
Bambang maintained that the governor and directors of Bank Indonesia would
be
appointed by the President.
"Under the new central bank bill there are clauses that will prevent Bank
Indonesia becoming less independent even if its board of governors is
appointed by the President," he said.
He said the President did not possess the right to dismiss the governor
before
his term expired and directors had different tenures.
The amended central bank law is designed to allow Bank Indonesia to
effectively operate as the country's highest monetary body--free from
government intervention in establishing monetary policy--and in monitoring
and
supervising the flow of the payment system.
Under the draft legislation, Bank Indonesia's board of directors,
consisting
of the governor and between five and seven directors or deputy governors,
will
be appointed by the President.
Bambang also said the government remained firm on its proposal to transfer
Bank Indonesia's banking supervisory role to a new independent body by
mid-2000 to prevent conflicts of interest between its lender of last resort
role and bank supervisory function. (rei)