Sadanand Dhume, Jakarta – Whoever thinks central banks are dull and stodgy probably hasn't been to Indonesia recently. Take, for instance, the latest drama to be enacted in Jakarta's corridors of power. On December 6, Bank Indonesia Governor Sjahril Sabirin strode back into his office after nearly six months of house arrest on unproven corruption charges. His purpose: to retake control of the country's most important financial institution.

Meanwhile, President Abdurrahman Wahid has virtually declared war on Sabirin and is pushing for new legislation that will make it easier to fire him. A law passed during the presidency of Wahid's predecessor, B.J. Habibie, has protected the governor because it guarantees the central bank's independence. It allows for his dismissal only on conviction of a crime or for proven incompetence. However, critics of the law say it was pushed through in haste and has made the bank unaccountable for its actions.

Not wanting to be left behind, Indonesia's political parties are jostling for the spoils, which could include the governorship, deputy-governorship and seats on the bank's board. Parliament's 10 different factions, debating the government bill by committee, want to make the bank more accountable – to them. Their proposals include requiring the bank to report before parliament on an annual or monthly basis.

The political reasons for wanting to control Bank Indonesia are obvious. In a country where tens of millions are poor, the ability to control inflation can have direct political consequences. Plus, the bank's supervisory role makes it a powerful source of patronage.

Commentators say parties are starved of funds and the ill health of the private sector makes public institutions such as Bank Indonesia and the Indonesian Bank Restructuring Agency important as sources of party war chests.

Making the bank accountable

In some ways, the tussle over the future of Bank Indonesia represents a familiar puzzle: how to make a central bank accountable to elected officials, yet independent enough to make its decisions for economic rather than political reasons. But it also highlights some of the problems Indonesia faces as it attempts to revive an economy still reeling from the effects of 1997's meltdown – public institutions in disarray, policies routinely attacked by political-conspiracy theorists and falling overseas confidence in Wahid's young government.

"The right answer for Indonesia would be a central bank with a board made up of strictly independent professionals who are honest, dedicated people," says a Jakarta-based international banker. "That probably won't happen. It will be a combination of the good people and people tainted by corruption and politics." Ironically, Bank Indonesia was considered one of the better-run institutions during the long tenure of President Suharto. Though it took orders from the president, the bank was conservatively run. From the late 1970s until the mid-1990s it helped keep inflation low, real interest rates stable and the money supply in check, notes Umar Juoro, head of Jakarta's Centre for Information and Development Studies.

The problems at Bank Indonesia started during the mid-1990s as it relaxed supervision standards amid the country's financial liberalization. The bank began to act as a virtual ATM machine for the politically well-connected, including Suharto's children. Last year, Indonesia's Supreme Audit Agency discovered the misuse of about 85 trillion rupiah, part of the staggering 144.5 trillion rupiah ($15 billion) in emergency relief provided by Bank Indonesia to banks between 1997 and early 1999.

So far, it appears that Indonesia's major parties are behind the bid to tighten the legislature's grip on Bank Indonesia. Golkar Party member Daryatmo Mardiyanto says the new law will ensure that the House of Representatives "controls the bank – not to change independence, but to make it accountable for the public."

But Juoro, the economist, isn't so sanguine. He says the parties have one eye on raising cash for elections in 2004. He likens this consensus to the back-room brokering that elevated Wahid to the presidency. "Underlying this support for a new law is that, 'We support the legislature's influence, as long as we also get a share,'" he says. "But economically speaking, who pays the costs? They go to the public as always."