Robert Go, Jakarta – Indonesia's Parliament and government are close to splitting control of the Central Bank and unravelling the bank's politically independent status, a move that is set to bring a head-on collision with the International Monetary Fund.

Well-placed sources, both within and outside of government, told The Straits Times that parliament and the administration have privately resolved their dispute over control of Bank Indonesia.

Legislators would also force the resignations of Bank Indonesia's current leadership once they finish revamping the country's central bank laws.

But the IMF, whose team landed in Jakarta on Tuesday to review the future of its stalled US$5 billion loan programme with Indonesia, has repeatedly warned that central bank independence is a crucial factor for future loans.

Analyst Umar Juoro, director of the Centre for Information and Development Studies, said: "Both parliament and the government are paying lip service to the idea of central bank independence." Concerns over the government's intentions regarding the Central Bank was one of the factors cited by the IMF for suspending a US$400 million installment to Jakarta last December.

And according to Mr Vasuki Shastry, an IMF spokesman in Washington, the fund's experts who begin talks with Indonesia's economic team today will still focus on how the government plans to resolve the central bank standoff.

Deputy Coordinating Economic Minister Dipo Alam told Satunet Online News yesterday that provisions forbidding interference in the banks operations had to be removed before parliament could revamp the laws to ensure better performance from the bank.

Indonesia desperately needs a good review from the visiting IMF team and a favourable decision from the IMF. On its own, each IMF loan installment of around US$400 million has little impact on the government's strapped coffers.

Indonesia's 2001 budget deficit is projected to reach over US$7 billion, its total sovereign debt extends to over US$134 billion, and servicing those debts will cost the country some US$8 billion, or around 31 per cent of government expenditure, this year.

Nonetheless, an IMF approval would trigger various debt-rescheduling deals Jakarta has signed with its creditors, as well as help revive the confidence of potential lenders and foreign investors in the country.

The process is far from over, but it appears that the government is gunning for control of Bank Indonesia, despite IMF warnings that it will not tolerate such a situation, said Mr Umar.