Bank Indonesia’s former deputy governor, Anwar Nasution, believes his resignation a week ago has given him new legitimacy, leaving him free to take up President Wahid’s offer of Governor. Here, Nasution tells FinanceAsia.com that the government needs to speed up changes in the law that will allow him to take over from former governor Sjahril Sabirin who is now under house arrest for his involvement in the Bank Bali scandal. If they don’t resolve the deadlock soon, Nasution says he will return to his life as an academic.
Q: Why did you resign?
A: For moral reasons. I had a responsibility to take some of the blame for the poor decisions that the central bank has made and say sorry to the Republic.
Q: And now President Wahid has recommended that you be appointed the next governor. Do you think you have been forgiven?
A: I have been an academic all my life. When you work for the central bank or any public service, trust is important. If there is an erosion of that trust then it is better to resign from your post. But if they want to give me new legitimacy then this is different. It is obvious that the President still has trust in me and I feel that his recommendation is a call of the nation.
Q: So will you take up the post?
A: Not until they sort out what is happening with Mr Sabirin. It is still not very clear how they are going to appoint a new governor but it will require us to change our laws which are translated from the laws governing the Bundesbank. If they can’t speed up their decision making process, it doesn’t matter, I will go back to academics.
Q: Are you confident that the government can make the necessary changes to the laws?
A: I am disappointed that it is taking them so much time. It has been over a week now [since my resignation] and still nothing has been resolved. I don’t know anything about the law and I don’t think it is right for me to get involved, so I must wait.
Q: Do you think the support for your governorship goes beyond President Wahid?
A: Oh yes, the President, the Speaker of the House and the Finance Minister are all on my side, so I don’t know where the bottleneck is when they all trust my ability to stabilize the market.
Q: Does it concern you that politics is playing such a big role in the appointment?
A: That is all part of the difficult process of shifting from an authoritarian government which used to rule Indonesia to a democracy. We are still in the very early stages of democracy here and it will take time before we reach maturity.
Q: Will the other board governors who resigned with you receive the same forgiveness from Wahid and also be reappointed?
A: I have no control over how the board is structured. I can make suggestions and I can nominate people but they must all be ethical people. The key is integrity and a perception of integrity. I think the people of Indonesia feel that the central bank has not operated properly and they want to see some blood spilt.
Q: What are the chances that the government will be able to recover any of the money that was improperly channeled by the central bank in its liquidity assistance program?
A: This is in the hands of IBRA. It is their responsibility now.
Q: If you do become the next governor, what are your main objectives?
A: We need to rebuild confidence in the country and help the country make the transition from a past tainted by financial depression to a time when there is great market prosperity. We also need to emerge from a long period of looking inwards and deal with the problems of globalization face to face.
Q: There is some criticism about the way the IMF and the World Bank have undertaken their duties in Indonesia. Do you agree with this criticism?
A: There is some truth to these criticisms but the Indonesians need to take some blame for how the relationship has been handled. You need to be able to argue with them at an academic and economic level. All of the people at the IMF and the World Bank are good economists and good consultants but they are not Indonesians and they don’t know this country well. We need to have a mature discussion with them about what their demands mean for our people.
Q: How will you handle the relationship differently?
A: I will argue with them to get what we want. They should know that the pace of bank and economic reform needs to be tempered with political considerations. In the past I have been critical of the government because they have not listened to the people at the central bank. The government is not a good negotiator because they don’t understand economics. I went to the same universities as these people and read the same text books, so I think on their level.
Q: Interest rates in Indonesia are still high and this is stifling the economy. What can you do to bring them down?
A: This is very much dependent on the pace of bank restructuring. High interest rates are related to high non-performing loans at the banks. We need to create a good secondary market for government bonds that can be used to recapitalize the ailing banks. As there is now no trading of these treasury bonds, the banks are still relying on interbank lending for liquidity and this puts pressure on rates.
Q: Can you create some interest in these treasury bonds?
A: Our main job is to help the Ministry of Finance create a market for the bonds but we can’t buy them directly. This would add to the government debt and drive up inflation.
Q: How weak is the banking system in your view?
A: It is still in an intensive care unit. Good companies are still relying on banks in Singapore to provide them with working capital. We need to speed up bank restructuring and I am hoping that the new head of IBRA will be able to help us do this. I am also confident that Rizal Ramli is active and is willing to take a risk, so his new role in the Ministry of Finance is a big step forward.
