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.