T

he proposed new financial system stability net (JPSK) bill will emphasize meticulous and transparent decision-making processes during economic crises that could provide stronger legal protection for policymakers, but excluding fully fledged legal immunity, which has been the bill'€™s sticking point for years.

The JPSK bill, expected to be passed into law this year, will act as a crisis management protocol for officials amid increasing volatility in the global economy from China to Greece and at a time when potential shocks from US interest rate increases are also imminent.

During crises, policymakers will be legally allowed to take approaches that may contravene existing laws and regulations that govern them, according to the JPSK bill, a copy of which was obtained by The Jakarta Post.

'€œThe main purpose of this bill is to give a clear direction on crisis-management protocols, which will give natural legal protection for policymakers who take actions based on the preset steps,'€ said Isa Rachmatarwata, an expert staffer at the Finance Ministry and a major draftsman of the JPSK bill.

All policies taken at times of crisis, however, must first be approved unanimously by all four members of the Financial System Stability Committee (KSSK) before they can be implemented, with the decision-making process documented in a form that could be made public, the bill states.

The four members of the KSSK are the Finance Ministry, Bank Indonesia (BI), the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS); with all the members effectively having a veto power; opposition by a single institution would prevent an action being implemented.

The KSSK will be responsible for the nation'€™s crisis prevention or '€œfirefighting'€ roles from performing regular monitoring of the financial system and purchasing government bonds in the secondary market, to bailing out insolvent banks.

On the contentious issue of bank bailouts, the bill proposes a strict rule: The KSSK can only provide liquidity assistance for lenders included in the OJK'€™s list of '€œdomestic systemically important banks'€ (DSIB) '€” '€œtoo-big-to-fail'€ banks whose collapse could have a far-reaching impact on the financial system.

Deliberation of the JPSK bill has been stalled for years over debates regarding legal immunity for government officials, following controversies surrounding the Bank Century bailout, where top policymakers from former vice president Boediono to former finance minister Sri Mulyani were entangled in a legal investigation over their decision to inject Rp 6.7 trillion (US$ 503.5 million) of state funds into the ailing bank.

Observers say that the legal immunity in the JPSK bill is necessary because the Bank Century legal investigation has served as a bad precedent for policymakers, thus discouraging them from acting in times of need.

However, the idea has been opposed by politicians, who fear that a legal immunity would instill '€œmoral hazard'€ that could provide incentives for policymakers to abuse their authority.

The latest draft of the JPSK bill does not mention granting legal immunity for policymakers, apart from a single clause guaranteeing the legitimacy of every action taken by the LPS, which will be responsible for managing banks that receive bailouts. '€œAll actions by the LPS in its management of DSIB according to this law are legally legitimate,'€ article 31 of the bill states.

Nevertheless, BI Governor Agus Martowardojo argued that the most recent JPSK bill provided step-by-step crisis-management planning in such detail that it would provide the legal certainty that policymakers really needed. '€œLegal protection does not have to be fully fledged legal immunity [...] but at least there is a law that could be benchmarked by policymakers when they make decisions, legal certainty,'€ he said.

The JPSK bill is seen as crucial to encourage policymakers to act decisively at times of economic crisis, with Indonesia under threat of sudden shocks from the global economy given the vulnerability of its local financial markets with high foreign ownership in local stocks and bonds.

'€œIf you look at developments in China and Greece, currently there is vast uncertainty in the global economy and it'€™s important to formulate a law that could instill composure among policymakers who have to make critical decisions,'€ said Fadel Muhammad, chairman of House of Representatives Commission XI overseeing the economy, who supports the JPSK bill.