President Suharto of Indonesia has sacked the governor of the Central Bank, Soedradjad Djiwandono.

No reason for the dismissal was given, but the governor is known to have disagreed with President Suharto over his handling of the economic crisis.

It is very unusual for President Suharto to dismiss ministers before the end of their five-year term. The governor had just three weeks before his term was due to expire.

A protester with a fist full of rupiah demonstrates in front of the Central Bank against rising food prices

It has long been rumoured that Mr Suharto blames the governor for the dramatic decline in the economy since last year.

Mr Djiwandono may have made some mistakes, but he was widely respected as an able and uncorrupt governor who was unfortunate to have presided over the bank during South East Asia's economic meltdown.

Financial analysts believe the sacking could further damage market confidence, which has already been shaken by widespread rioting and by a dispute between Mr Suharto and the International Monetary Fund.

Currency board row

President Suharto signs the IMF deal

The move also marks a new stage in the escalating row between Mr Suharto and the IMF over his wish to establish a currency board setting a fixed US dollar exchange rate for the Indonesian rupiah, which has been fluctuating wildly in recent weeks.

The board, which eliminates the need for a government monetary policy and removes most of the powers of the central bank, has apparently worked well in other countries struggling to emerge from financial crisis.

However the IMF and others believe the details of the Indonesian scheme are unfavourable - it would mean an exchange rate for the rupiah that would be twice the present value. The IMF managing director, Michel Camdessus, has threatened to suspend the $43bn aid package agreed last month if the plan goes ahead.

The Indonesian Government argues that the currency board is its only option if it is to bring the rupiah back to levels where business can start operating normally again. The country is suffering soaring prices and much of its business sector is burdened by colossal dollar- denominated debt.

Tommy Suharto's lavish wedding showed the rich lifestyle enjoyed by the President's family

The President, his family and his entourage are also victims of the rupiah's collapse. Much of their vast fortune has been wiped out by the crisis but some ground could be regained by the kind of sharp revaluation envisaged by the currency board scheme.

One ray of hope for those who wish to see a negotiated solution is that the new Central Bank governor, Sjahril Sabirin, will be able to draw on his experience as an economist with the World Bank in Washington.
 

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