They are normatively the right policy measures.

But, strong measures are needed to increase bank capital and liquidity buffers should be thick enough to strengthen their resiliency and withstand bigger losses and a longer crunch in financial markets.

Smoothing bank intermediation through an incentive-disincentive mechanism such as the lowering of the minimum reserve requirement for banks able to significantly expand their lending would help provide more financing to support economic growth.

Further improving the efficiency of banking operations would go a long way to decreasing lending rates which are twice as high as those businesses in other ASEAN countries have to pay. The interest rate spread - the gap between the costs of funds and lending rates - which remains at about 6 percent reflects the gross inefficiency of most banks.

In fact, unusually high lending rates are cited as one of the factors that have made Indonesian manufacturers less competitive against imports from China.

The programs, though quite necessary, are however not enough. In fact, a vital component - effective bank supervision - seemed not prominent enough in Darmin's policy statement. The acting governor touched only briefly on the vital role of banking supervision.

We assume Darmin shied away from reemphasizing too much the central bank's role in supervision not out of his ignorance of the importance of bank oversight. But he simply wanted to avoid setting off a new wave of debate about the planned integration of the supervision of all financial services into a single entity or Financial Service Authority (FSA), outside of Bank Indonesia.

In fact, he should realize how urgent and imperative the need is now to improve the technical competence and integrity of Bank Indonesia's supervision department. The finding of the parliamentary inquiry committee after six weeks of investigation into the 2008 bailout of Bank Century revealed how inadequate had been the central bank's surveillance and supervisory system and how questionable had been the integrity of many of its bank examiners and supervisors.

Testimonies to the committee revealed how the management and controlling owners of the bank had been able to throw almost all regulations on prudential banking operations out of the window. The supervisory system was not so effective because supervisors were incapable of assessing the integrity and competence of the bank management and understanding the risks taken by banks and their current and future profitability and earnings.

We think the most urgent program of action now is not to force the establishment of the FSA for banks and all other financial services this year, as required by the central bank law, but to further empower the existing bank supervision department at Bank Indonesia.

The experiences of other countries such as South Korea, the UK and Australia which have set up an FSA show at least two years are needed to prepare and set up all the legal frameworks and organizational structures for the FSA and its executing agency. We need more time to assess the advantages and disadvantages, to prepare the law and the entire legal and institutional infrastructure once we finally decide to adopt such an integration.

But what is needed right now, and at least for the whole year, is a much more effective bank supervisory system at Bank Indonesia which is well linked up with the oversight authority of other financial services such as the capital market and insurance.

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