Editorial: The fight for a new BI governor

Mon, 03/24/2008 1:10 AM  |  Opinion

With inflationary pressures persistently strong, and stocks and currencies tending to fluctuate wildly, a protracted political process of selecting a new central bank governor to replace Burhanuddin Abdullah, who will end his term in mid-May, could adversely affect the market perception of our macroeconomic stability.

President Susilo Bambang Yudhoyono therefore should immediately come up with new candidates for Bank Indonesia (BI) governor to replace the two nominees voted down by the House of Representatives last Tuesday. And given the animosity that surrounded the House screening of those two candidates, the President should nominate at least three candidates both from inside and outside the central bank to give the House a wider choice and to expedite the political process.

It is a futile and time-wasting exercise for the government to demand the House clearly account for its vote against the two candidates, Agus Martowardoyo and Raden Pardede. The market is nervously waiting to know who will be the new leader at the central bank now that its governor Abdullah, already a corruption suspect, is under investigation by the Corruption Eradication Commission.

If foreign capital leaves the country because of political bickering and concerns over BI monetary management capability, it will adversely affect the rupiah and stock market where foreign portfolio investors play an important role.

By nominating complete outsiders to the top post at the central bank, the President seemed focused on selecting a new governor of impeccable integrity since the outgoing governor had been declared a corruption suspect and there are several corruption cases currently under investigation that could implicate many incumbent central bank executives.

The House had no doubt about the high integrity and technical competence of the two candidates -- Martowardoyo, currently president of state-owned Bank Mandiri, the country's largest bank, and Pardede, the chairman of the government-sponsored Forum for Financial Market Stability and vice president of the state asset management company PPA -- but most House members saw them as too closely linked with the President to be able to function independently.

The House was right in demanding the BI chief not only have strong leadership but also be able to stand up against political pressures or interference from the government, especially in view of the upcoming general elections and presidential elections next year.

One may argue the central bank faced an even worse situation than it does now when its then governor Sjahril Sabirin was jailed for six months in 2002 and was eventually convicted by the Central Jakarta district court with a three-year jail sentence, yet BI worked normally and Sabirin resumed his functions until the end of his term in mid-2003 after he was acquitted by the Supreme Court of all charges.

But given the uncertainty over the global financial market and the corruption cases currently engulfing the central bank, we urgently need a new central bank governor not only with impeccable integrity and strong leadership qualities. The candidate also must be a brilliant macroeconomist with extensive international networks, a good public speaker, an able chief executive and an international diplomat.

These requirements are necessary for the leader of such a politically independent institution as the central bank, which functions as the bedrock of the monetary system, the guardian of monetary policy and the arbiter of the financial system.

There are several candidates that meet the criteria, including the current chief economic minister Boediono, who himself was formerly a BI deputy governor, and several members of the current BI board of governors, especially senior Deputy Governor Miranda S. Goeltom.

At the present time when new crises seem to emerge on a daily basis, when the outlook for the economy is bleak, consumer confidence is fragile and better cooperation and coordination between the fiscal and monetary authorities is even more imperative, a weak governor at the central bank could send the wrong signal to the market.

The role of BI is especially crucial for our macroeconomic stability and growth because different from the central banks in other countries, BI is tasked with multiple missions of maintaining the stability of the rupiah and general price rates (low inflation) and supervising the banking industry.

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