Hope, skepticism mark FSAI plan

Evi Mariani The Jakarta Post Jakarta

The government's plan to establish a one-roof financial regulatory and supervisory institution called the Financial Services Authority Institution (FSAI), has raised hope and skepticism among economists, financial regulators and market players as the institution would have a very powerful role.

According to a draft law on the planned FSAI, the board's seven commissioners, six of whom are to be appointed by the president and one by the governor of the central bank, would have tasks to give and abrogate licenses to financial institutions as well as to regulate and supervise them.

Presently, a debate on the FSAI is developing, especially about the timeframe of its establishment.

The director general of financial institutions at the Ministry of Finance, Darmin Nasution, said that the ministry wanted to see the FSAI operating by 2006.

On the other hand, Bank Indonesia has demanded a longer preparation time for establishing the FSAI, with Central Bank Governor Burhanuddin Abdullah saying that an effective institution would require about five to 10 years.

Central bank officials have quietly lobbied key figures at the House of Representatives to delay the planned institution.

The Ministry of Finance argued that the country was already in need of the FSAI as financial products had become more integrated. For example, banks are offering insurance products while insurance companies offer investment services.

Consequently, the government said the current system was no longer adequate. Under the current system, the supervisory and regulatory roles of the banking industry had been entrusted to Bank Indonesia, the stock market to the Capital Market Supervisory Agency (Bapepam) and insurance services and other products to the Ministry of Finance.

Supporters also argued that it was high time for Bank Indonesia to release its supervisory role in the banking industry as the central bank had been doing a poor job in the past and that had contributed to the costly late 1990s financial crisis.

The Asian Development Bank (ADB), one of the country's major foreign lenders, has also insisted that the FSAI be set up immediately, according to the government.

Therefore, the government has been brewing the concept of the FSAI, after learning of operations of similar institutions in other countries, such as Britain, Australia, South Korea and Canada.

Economist Didik Rachbini said that Indonesia needed an institution like the FSAI. "The sooner we have it in place the better because there have been a lot of problems, such as complicated conglomeration in our financial system," said economist Didik Rachbini.

But others disagree.

"Establishing a new institution (FSAI) would be costly and might not be effective," economist Dradjad Wibowo, the director of the Institute for Development of Economics and Finance (Indef), told The Jakarta Post.

"Moreover, I've heard that the salary of the planned institution's chief commissioner could hit Rp 120 million (US$14,000) a month," he said.

In the draft law, it is stated that the FSAI will be funded with fees collected from financial institutions. The amount of the fees will depend on the size of each institution's assets and the amount of its bad loans; the larger the assets and the bad loans, the higher the fees.

Dradjad recognized the ineffectiveness of the current system, but said "why don't we improve and optimize the existing (supervisory) institutions instead?"

It seems that there is still plenty of time for debate, as the House is not in a rush to deliberate the bill.

"The schedule for the deliberation of the bill is in August. We don't have to rush," Max Moein, a member of the House's Commission IX for financial affairs, told the Post on Friday.

For eyebox

Britain introduces first FSA

In the government's academic draft on the FSAI, Britain is mentioned as the first country to transfer the banking supervisory and regulatory roles from its central bank to an institution called the Financial Services Authority (FSA) in 1997.

The FSA aims to maintain confidence in the financial system, promote public understanding, protect consumers of financial services and reduce financial crimes.

Canada also has this authority -- the Office of the Superintendent of Financial Institutions (OSFI). Not different from Britain's FSA, Canada's OSFI is also designed to protect consumers as part of its objectives.

In 1999, according to a Central Banking Publications report, 65 percent of industrial countries give banking supervisory and regulatory roles to institutions outside central banks while 35 percent to central banks.

Among developing countries, 78 percent give the role to central banks and 22 percent to institutions outside central banks.