Hope, skepticism mix over FSAI plan

Hope, skepticism mix over 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. 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.

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.

"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.

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.