The Financial Services Authority ( OJK ) will take over the overall monitoring authority for financial services, previously held by the Finance Ministry’s Indonesian Capital Market and Financial Institution Supervisory Agency ( Bapepam LK ) and Bank Indonesia, by 2014.
The OJK, often called the financial superbody, is now entering its transition period and at the helm in this crucial period is OJK chairman Muliaman Hadad. In a recent talk with The Jakarta Post’s Hans David Tampubolon, Muliaman, who is also a former Bank Indonesia deputy governor, shared his thoughts on the OJK and its challenges during the transition to becoming a solid monitoring institution.
Question: What drove you to become the OJK chairman despite the possibility of receiving a smaller salary than as a Bank Indonesia deputy governor?
Answer: What drove me the most was the fact that there is such an overlapping of authority between Bank Indonesia and the OJK that needs to be addressed. The relationship between the OJK and Bank Indonesia, in terms of authority, is very close and this will make overlapping very intense. Therefore, we need to start addressing this issue from the start. If I am still working for Bank Indonesia, I will assign someone to clarify the issue of overlaps. The fact that I am working in the OJK now obliges me more to use my authority to proactively clarify potential overlaps together with Bank Indonesia. I believe we need the presence of Bank Indonesia officials in the OJK, particularly because the OJK is still in its early stages. Later on, everything will work in accordance with a formulated system, which we need to set up now. To set up this system, both institutions need to have a common understanding about their relationship. Once the system is set up, it will work on its own.
Could you give me examples of potential overlaps of authority?
There are so many examples. Every single Bank Indonesia policy will affect the financial industry either as a transmission channel or as subjects and objects. Monetary policies will only be effective if their transmission to the financial institutions is conducted in an effective manner. The ability to transmit those policies depends on the financial viability of the respective financial institutions. If the financial viability is not good, then the transmission of the policies will not be effective. The OJK law clearly states that Bank Indonesia is authorized on macro prudential issues, while the OJK monitors micro prudential issues but in reality, those issues will always overlap one another. They are not simply black and white and cannot stand on their own.
How will you manage potential political intervention when the OJK wants to apply its policies?
I like the word ‘manage’ because we definitely cannot avoid political intervention. From the beginning of the OJK, political influence has been massive. The selection process of the commission board members was conducted by the House of Representatives, making the OJK commissioner posts highly political. Therefore, we need to be able to manage our political communication in a proper manner. We need to educate one another about each other’s roles so that we can remain in accordance with the OJK law. Communication is very important, because without it, I will find it hard for us to educate one another about essential issues in the financial industry that need to be resolved without having to break the boundaries of the law and its corridors that have clearly obliged the OJK to maintain the optimal levels of the financial industry to support national economic growth in the long run.
The OJK is a superbody with a larger authority than the Corruption Eradication Commission [KPK]. The KPK has had numerous conflicts with law enforcers due to its investigative authority, how will the OJK prevent this?
First of all, we are not planning to create commotions. We are going to be thorough and we are going to appropriately learn to utilize our authority. We are going to take into account past incidents involving other institutions and law enforcement institutions. Regardless of what happened in the past, the OJK must be able to build a sufficient and strong investigative system and posture. To do this, we cannot just simply fill investigator posts with individuals, but we also need to consider how to properly build good communications with other related stakeholders and then we also need to think about how to build the capacity of our investigative system. The OJK law stipulates that only civil servant investigators and members of the National Police can be named as OJK investigators. We need to optimally build our investigative posture based on these elements. We expect a lot of assistance from the National Police and at the same time we will also develop the capacity of our civil servant investigators so that they will be able to have a greater technical understanding of various issues and aspects of the financial industry.
The OJK is also authorized to collect fees from the industry, what is the mechanism?
We have to collect fees in a ‘just right’ manner. This means that our fee collection will not burden the financial industry, will not affect competitiveness and will not reduce the quality of service to customers. The fee collection will also be transparent and accountable. Another important note about the fees is that they will be recycled for the benefit of the financial industry. We will collect fees from the industry and these fees will be given back in other forms. For example, the collected fees will be used to improve the quality of the financial industry monitoring system. By improving this system, market confidence will improve and eventually will push the financial industry’s growth even further. We can also use the collected fees to provide subsidies for training and educational activities in the financial industry. Training and education will become the main focus of the OJK because we believe that will benefit the financial industry greatly. So, there is no need for the industry to worry about the fees because in the end, the players themselves will reap the benefits.
As the first ever OJK chairman, what kind of legacy do you wish to leave behind?
I only have five years to complete my duties and at the very least, I hope to be able to leave a strong foundation for the development of the future financial industry monitoring system. If I am able to build a strong foundation, future OJK chairmen and commissioners will only need to continue what I and my fellow commissioners have built. Developing a solid foundation depends on our capability to establish a strong system. This system will become a long-term guideline for the OJK’s future. The current OJK must be able to build its internal capacity and it must also develop a better monitoring system.