During the past couple of weeks, the powerful Finance Ministry and Bank Indonesia have been locked in a dispute over how best to implement particular monetary instruments.

The heated debate, now prominent in the mass media, seems to highlight what some have quietly said amounts to rising frustration among central bank officials over the government's inaction in improving the domestic investment climate. On the other hand, the government's economic team has also been frustrated over the central bank's stubbornness in maintaining high interest rates, which they say hampers economic growth.

On Monday, Minister of Finance Sri Mulyani Indrawati was apparently disturbed by comments made over the weekend by BI director for strategic planning, Budi Mulia, that the central bank was planning to stop issuing 3-month Bank Indonesia promissory notes (SBI) in April.

Budi said the monetary instrument had often misled the market in gauging the central bank's interest rate policy. He added that the move would help reduce the cost of the central bank's monetary operation.

"The 3-month SBI notes will be terminated because the market has often conceived the (interest rate) of the 3-month SBI as the target for the future BI rate, which actually is not the case," Budi told reporters.

Claiming that the plan had been discussed with the government, Budi said that the 3-month SBI notes would be replaced by treasury bills (maturity of less than a year) issued by the ministry.

But Sri Mulyani criticized the central bank official for prematurely unveiling the plan, as her ministry had yet to complete discussions with the central bank over the issue; particularly considering the capacity of the ministry and the budgetary consequences for issuing the short-term notes.

"The statement came from only one official, not from BI as an institution

"Up to this point, there aren't any changes, so the market doesn't need to react excessively to the statement," she said, while adding that central bank officials should be more careful when making comments about monetary policy, to avoid unnecessary speculation from the market.

The Finance Ministry's director-general of treasury Mulia Nasution objected to the early plan to terminate the 3-month SBI notes, saying that handing over the monetary operation to the ministry would create heavier burdens on next year's state budget as the government replacement notes would mature in 2007.

Bank Indonesia Governor Burhanuddin Abdullah declined to comment about Budi's statement.

Budi's statement, however, seems to be in retaliation to the central bank over previous remarks made by the Finance Ministry. Two weeks ago, Mulia told the press that the government was planning to withdraw some of its funds deposited at the central bank and put the money in commercial banks to allow the cash-strapped government to obtain interest revenue. He said that the funds, reportedly around Rp 60 trillion (US$6.5 billion), were not getting interest from Bank Indonesia.

Bank Indonesia immediately expressed objection to the plan, saying that it would increase the cost for the central bank in carrying out monetary operations as it would have to absorb excess funds in the banking sector to prevent inflationary pressure.

The central bank also said that it was still in discussion with the ministry on how much interest rate should be given for the government funds.