Darmin named BI senior deputy governor

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Tue, 05/12/2009 2:01 PM  |  Headlines

Tax office chief Darmin Nasution has been appointed as Bank Indonesia's (BI) senior deputy governor, replacing Miranda S. Goeltom.

Miranda's term ends next month.

"With a consensus, we choose Darmin as the new BI's senior deputy governor," Ahmad Hafiz Zawawi, the chairman of the House of Representatives' commission XI overseeing financial affairs, told reporters.

Hafiz said 40 lawmakers from 10 factions attended.

Darmin, renowned for his success in reforming and cleaning up the tax office, previously infamous for its flourishing back-door deals, is expected to continue his track record by improving the governance of BI.

BI, as the banking and monetary authority, has been widely criticized for its weak supervision, with several cases where stronger financial supervision would have been desirable, including the liquidation of Bank IFI and the Bank Century-Antaboga Delta Sekuritas scandal.

"Creating a credible BI is a must and pre-requisite so its functions and role can be effective. There is a weakness in BI's governance structure," Darmin told lawmakers, prior to his appointment.

He added that current changes at BI had been less than needed, as indicated by these incidents in the financial sector, stressing the need of a "second opinion mechanism" at the central bank to ensure its officials carried out the right measures to protect the financial sector.

Analysts have said that his clean and uncorrupt character fits well with the government's mission to implement good governance within the central bank, which has been linked with several embarrassing scandals in the past.

In late 2008, Miranda, who has occupied the current position since June 2004, was mired in controversy when former legislator Agus Tjondro told the Corruption Eradication Commission (KPK) he had received a traveler's check soon after voting for her appointment. But Miranda has never been questioned by the KPK.

"The financial sector is like the heart of the economy. Any activities in this sector need institutional rules, regulations and rules of the game to manage intermediary functions, how the market works, information, and the legal and judicial framework.

"Such regulations are needed due to the potential for imperfections in the market and *among* market players:- depositors, managements and debtors," said Darmin.

"We have recorded many weaknesses at the implementation level of banking supervision. These are obvious by the manipulations relating to or using banks and securities companies," he added.

Darmin said the central bank, as a supervisor, should prevent players in the financial sector from "excessive risk-taking", adding that a new agency - called the Financial Services Authority (OJK) - would help to manage that problem.

He was one of the original initiators of the establishment of OJK - which would change BI's job to solely that of a monetary authority.

Darmin also said control of inflation would be of high importance to facilitate cutting bank lending rates, which remained too high although BI had continued to cut its benchmark interest rates.

One of the keys to success in controlling inflation in Indonesia would be tight coordination between BI and the government, he said.

"*The way* to cut the costs of funds is by cutting inflation. A low inflation rate will accelerate stock market development and put pressures on banks *to cut rates*," said Darmin.

Darmin, whose educational background includes a Doctorate in Economics from the university of the Sorbonne in Paris, comprehensively beat his only rival for the position, Gunarni - a seasoned banker who is also former chairperson of the National Banks Association (Perbanas).

Gunarni said earlier in the day that BI should improve its governance by strengthening its internal audit system and the BI supervision agency (BSBI).

Before the lawmakers, both candidates stressed the need to develop rural banks (BPR) and regional development banks (BPD) to develop the economy in local regions.

It is so far unknown as to who will replace Darmin's position as the chief of the tax office.

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