FSAI to be set up within three years, govt says
The Jakarta Post, Jakarta
The Ministry of Finance said that a new agency called the Financial Services Authority Institution (FSAI) would be ready to take over the central bank's banking supervisory role within three years.
But Bank Indonesia has demanded a longer period in an apparent struggle between the government and the independent central bank, which may lead to a further delay in the setting up of the key institution.
The FSAI will be a powerful institution as it will not only supervise the banking industry, but also other related services such as insurance, pension funds, and securities.
By transferring the central bank's banking supervisory role, Bank Indonesia's main focus would be on creating a stable macro economic condition, a mandate stipulated under the 1998 central bank law.
The impetus to set up the FSAI came amid increasing challenges facing the financial services industry in the fast-changing global economy.
The government initially planned to set up the FSAI next year, but it has been delayed due to protests from players in the financial industry.
Director general of financial institutions of the finance ministry Darmin Nasution said on Friday that the ministry wanted to see the FSAI in operation by 2006, assuming that the bill to formalize its establishment is approved by the House of Representatives this year.
"Three years from now is sufficient time to prepare the human resources, system, organization as well as regulations," Darmin said.
He said the bill on FSAI was still being prepared at the State Secretariat.
But Bank Indonesia has a different view. Newly appointed central bank Governor Burhanuddin Abdullah said recently that preparation for setting up an effective FSAI would need between five and ten years.
He said that hasty preparation would create various technical problems, such as a lack of qualified personnel and effective coordination, which may in turn lead to chaos in the financial sector particularly in the banking industry which has just started to recover from the late 1990s crisis.
Darmin dismissed the observation that there was a serious struggle between the finance ministry and Bank Indonesia over the time frame target for the FSAI, saying that the two sides could sit together to settle any differences.
Darmin explained that the establishment of the FSAI was urgent because of the deep-rooted conglomeration practice in Indonesia's economy as evident in the cross-ownership between the financial service industry and the real sector economy.
"It would be more effective if the supervision of the financial sector is in one hand," he said, adding that financial products seem to be becoming more and more borderless.
The late 1990s banking crisis has been partly attributed the abuse of power by bankers who transferred depositors money to their affiliated business groups without making proper assessments.