House to endorse BI law amendment

House to endorse BI law amendment

The Jakarta Post, Jakarta

After years of wrangling and disagreements, the deliberation
on the amendment to the existing Bank Indonesia Law has been
completed, with the House of Representatives plenary session
expected to pass it into law on Friday.

The bill on the amendment, which was first proposed to the
House in 2000, will amend existing Law No. 23/1999 on Bank
Indonesia.

The planned passage of the bill should end numerous public
spats among relating parties; Bank Indonesia, Ministry of Finance
and lawmakers, on a number of contentious issues. These centered
on three issues: the proposed establishment of a supervisory
body, the establishment of the Financial Services Authority
Institution (OJK) and a mechanism on the Financial Safety Net.

However, the most crucial point was the government's proposal
to set up of the supervisory body, delaying the planned
endorsement of the bill that was initially set for Tuesday,
according to Director General of Financial Institutions at the
Ministry of Finance Darmin Nasution.

"The deadlock on that issue has led to postponement of the
passage of the bill," he said.

The body, proposed by the Ministry of Finance, would be tasked
with overseeing the performance of the central bank's board of
governors -- viewed by Bank Indonesia as a threat to its
independence.

Bank Indonesia officials have strongly opposed the idea from
the beginning.

Under the government's proposal, the supervisory body would
focus on setting up a control mechanism to supervise and monitor
BI's board of governors.

Minister of Finance Boediono has stressed that the move was
necessary in order to balance the central bank's independence
with its accountability.

However, as reports abound about BI's extensive lobbying among
legislators, the lengthy deliberation process finally resulted in
a decision in favor of the central bankers.

While the establishment of the body was approved, its tasks
would only cover the management of BI's assets, budget and
investment. The body would not be allowed to monitor, oversee and
intervene in BI's functions as the sole bank supervisor, monetary
policy controller and its role as the executor in the country's
balance of payment.

Officials of this body could not even attend the meetings of
the central bank's board of governors.

Another unsettled issue, was the planned establishment of the
powerful OJK, which would have taken over BI's bank supervisory
role. But again, a decision was made in favor of Bank Indonesia.

While the Ministry of Finance had proposed that the OJK be set
up in the next one or two years, a clause in the amendment stated
that BI would remain in charge of supervising banks and that OJK
could be set up by 2010 at the latest. The OJK, which would be
under the Ministry of Finance, will also oversee other financial
institutions such as insurance, pension funds, securities houses,
and multifinance firms.