House still divided on members of OJK board

Five days ahead of schedule, the draft bill on the establishment of the nation’s proposed financial superbody, the Financial Services Authority (OJK), is still stuck in debates on the selection of members of its board of commissioners.

House of Representatives’ Commission XI legislators Harry Azhar Azis and Nusron Wahid, who were involved in drafting the bill, said Friday that the government and the House were still protecting their options.

The government had expressed its desire for the seven members of the board of commissioners to consist of two officials from the central bank (BI) and the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK), three experienced banking, capital market and non-banking executives, and two academics.

“Several factions supported the government’s option, but others have rejected it over concerns that the OJK would not be independent and would remain a part of the government,” Harry said in a statement, citing a law used as reference for drafting the OJK bill.

Law No. 3/2004 on BI implies the OJK should be independent and not connected to the government, he said.

The PDI-P and Golkar wanted all seven commissioners to be selected by the House to avoid conflicts of interests between existing officials. Other parties suggested that the OJK board should comprise two officials from BI and Bapepam-LK, with the remaining five candidates nominated by the government subject to House approval.

“If the issue [of the board of commissioners] could be resolved, the OJK draft bill could be passed on Dec. 17 in a plenary session,” Harry said.

The House will be in recess after that date, even though the law on BI says the OJK should be established before the end of 2010.

This week will be the last chance for legislators to approve the draft law because Friday, Dec. 17, will mark the end of the 2010 House working session.

The legislators will reconvene in January.

An article in Law No. 3/2004 also stipulates that the banking supervision function would be taken away from the central bank, as the OJK would supervise all financial activities, from banking, capital banking and non-banking sector services, such as insurance, under a one-roof system.

In a meeting with Southeast Asian central bankers on Friday, Bank Indonesia (BI) deputy governor Halim Alamsyah said that “Indonesia is going in a different direction”, in reference to the transfer of banking supervision to the OJK.

“Anywhere in the world, financial stability is a central bank’s responsibility, because financial supervision is closely related to monetary stability. One affects the other, and central banks have the skill sets for both of them, so it would be more optimal if banking supervision is under the central bank,” Halim said.

Southeast Asia’s central bankers backed BI’s stance, saying that central banks are supposed to be the supervisors of domestic banking systems.

Former Bank of Thailand governor Tarisa Watanagase said the central bank should control the bangking system because it had in-depth knowledge of “what’s going on, not just in an individual institution, but also the entire financial sector”.

Being the monetary policy maker, the central bank will be able to have a holistic view of the economy, the real economy and the financial sector, and see what policy or measure is needed,” she said.(est)