Indonesia needs new financial authority says Finance Minister

Friday, 19 June 2009

The Jakarta Post

Government is going ahead to set up a powerful new financial services authority (OJK), taking into account the central bank, whilst improving, has not done a “perfect” job, a minister says.

“We see in the past 10 years or more since [the] 1997-1998 [Asian financial crisis] the evolutions of Bank Indonesia’s efforts in [bank] supervision is not yet perfect, although it is improving,” Finance Minister Sri Mulyani Indrawati said on Thursday.

The government, in cooperation with the central bank, is finalizing the bill to set up the financial services authority (OJK) and hopes to submit it soon to the House of Representatives, aiming to establish the new body before Dec. 31, 2010, as mandated by the law on BI.

Fuad Rahmany, the head of Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), and BI deputy governor Muliaman D. Hadad, who is in charge of the banking sector, are heading a team tasked to design the most suitable type or form of OJK to be established here.

Article 34 of the 2004 law on BI stipulates the supervision of banks — currently the domain of BI — should be carried out by an independent financial services authority, which will be established under the law.

“The government and BI have agreed that we have the same aim, that is the monetary and fiscal authorities have an interest to design an economy in which the financial system can expand, but it needs to be regulated and effectively supervised,” said Mulyani.

She added the government and BI were finding the best form of OJK to be implemented here in Indonesia, as the government had learned lessons from the UK, whose central bank and Financial Services Authority (FSA) had experienced problems sharing  information, causing flaws in financial sector supervision.

Simon Morris, who is the chairman of Foreign Bank Association of Indonesia (FBAI) and chief executive office (CEO) of Standard Chartered Bank Indonesia, admitted that the UK’s FSA could have done better in handling the global financial crisis, which started in the US and UK,  then affecting banks globally.

British citizen, Simon Morris said he could see the benefits of the OJK as the UK had implemented a similar FSA concept, but the recent crisis demonstrated that even a country with an FSA to supervise its financial sector could be hit by problems through gaps in supervision.

The US, whose financial sector is supervised by the central bank only, also failed to detect or react in time to the recent financial crisis.

The OJK will need to focus on information sharing with other regulators, including the central bank, to prevent a possible financial crisis, said Mulyani. “Information sharing or the flow of information needed by the two authorities [OJK and BI] should be managed accordingly to create synergy leading to reactions if there are problems,” she said.