Jonathan Thatcher, Jakarta – A growing feud between Indonesian President Abdurrahman Wahid and his scandal-tainted central bank governor threatens more damage to the country's already precarious chances of economic recovery.

On Tuesday, the central bank accused Wahid of undermining both its independence and the economy after Bank Indonesia governor Sjahril Sabirin was officially named a suspect in a politically-charged banking scandal.

"This isn't doing anything positive for the country. It's just more uncertainty," one financial analyst said, adding that investor interest in troubled Indonesia had already dwindled to minimal levels.

Worries of further instability pushed Jakarta share prices and the Indonesian rupiah lower in Tuesday trading. Both have long lost all the gains that followed the initial enthusiasm of Wahid's rise to power last year in Indonesia's first contested presidential election.

Government wants Sabirin out

Attorney-General Marzuki Darusman said the central bank chief should effectively be suspended from duty during the investigation into his role in the Bank Bali scandal.

But one deputy central bank governor, bristling at the move against Sabirin, accused President Wahid of trying to illegally unseat his boss and warned that the consequences would take the rupiah even lower.

"According to the central bank law, the governor will resign because he wants to. In this case he has been put under pressure. It's not good to resign under pressure," Achjar Iljas told Reuters. "We can not accept this ... We will take action. Intervention in the central bank is against the law," Iljas said.

Wahid denies discussing the Bank Bali scandal with the head of the central bank, but Sabirin says he has been pressured several times to step down.

The scandal erupted almost a year ago and revolves around a huge loan collection fee the bank paid to a firm close to the then ruling Golkar party. It has already effectively claimed one top official by helping destroy then-President B.J. Habibie's chances of re-election last October.

Adding to Indonesia's troubles

The naming of Sabirin adds to the country's economic woes, with both the rupiah and share prices under weeks of pressure over fears that unrelenting political uncertainty will prevent the government getting its economic recovery programme to work.

Indonesia's transition to democracy after decades of despotic rule has been marked by repeated scandal. Much of it is left over from the days of disgraced former President Suharto who towards the end of his rule made Sabirin central bank chief. But new ones keep popping up too. The latest involves Wahid's masseur, who is now being hunted by police over the theft of 35 billion rupiah ($4.20 million) from a state agency.

Wahid has publicly suggested Sabirin step down over yet another scandal involving massive Bank Indonesia loans to firms at the height of the economic crisis in 1997 and 1998, most of which have yet to be repaid.

This week, the state audit agency refused to give the central bank a clean bill of health because of those loans. Under a law passed last year, only parliament can sack the head of the central bank.

Mixed signals from parliament

But on Monday, the legislature was giving mixed signals in what is likely to become another political football in the jockeying for position ahead of a crucial meeting of the People's Consultative Assembly, Indonesia's top legislative body.

Wahid's opponents have lost little time in jumping on scandals and controversy to discredit the president ahead of the meeting of the assembly which has the power to force him from office.

Parliamentary speaker Akbar Tandjung said Sabirin would only have to step down if he was found guilty. But deputy speaker Muhaimin Iskandar, a member of Wahid's own political party, said parliament would meet soon to discuss a replacement to Sabirin. "My reading is that Sabirin's gone," one senior treasury manager said.

The timing is particularly sensitive as the government comes under heavy pressure to stop the rupiah from falling. Failure could mean its hopes for economic recovery badly damaged.

And if that happens, analysts warn that the rampant social unrest that has accompanied the past two years of recession could well erupt again.

"When the new government came in [last October] there was real hope it could arrest this uncertainty and do more, but this year [it has shown that] even if it has the will it doesn't have the ability," one analyst said.