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Jakarta Post

OJK needs reform to be more effective and independent

Earlier this year the Supreme Audit Agency (BPK) revealed weaknesses in seven banks, which the OJK allegedly failed to detect.

Harry Pattikawa (The Jakarta Post)
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Rotterdam
Mon, August 10, 2020

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OJK needs reform to be more effective and independent Someone’s watching: A man walks past the Financial Services Authority (OJK) building in Central Jakarta on May 15, 2013. Critics have mounted on the OJK to improve its oversight of the country’s financial services industry. (Tribunnews/Herudin)

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everal mass media reports last month said President Joko “Jokowi” Widodo seemed disappointed with the performance of the Financial Service Authority (OJK) and planned to reinstate the authority to supervise the whole financial service industry in Bank Indonesia (BI) as the central bank.

The plan to disband the OJK, which was established in 2011, seemed to have been prompted by the public opinion that the OJK had not been up to its task in effectively supervising the financial service industry. Earlier this year, for example, the Supreme Audit Agency (BPK) revealed weaknesses in seven banks, which the OJK allegedly failed to detect.

It should be re-noted that the OJK was established because BI was assessed as incapable of effectively supervising the banking industry, which had collapsed in 1998. BI also was blamed for the failure of Bank Century (now Bank Mutiara) and Indover bank. The latter was a full subsidiary of Bank Indonesia in the Netherlands that was declared bankrupt by Dutch authorities in December 2008.

It is important to consider that wherever the supervisory function is located, some real reforms need to be implemented. As long as these reforms are not implemented, whatever model of supervision authority may later be set up would most likely fail to perform effective integrated supervision of the financial service industry.

The President may consider at least the following reforms as necessary.

First, the (new) financial services authority should be less process-orientated and more result-orientated. That means that it should be less bureaucratic, less feudalistic and more focused on mitigation. The organization should slash red tape and overcome biases for delaying reforms when changes in regulation and supervisory strategy are required.

Second, the central bank and financial services authority need to be more dynamic and open. A concrete example is the recruitment of human capital at BI, which began more than 50 years ago with the recruitment of talents (fresh graduates) under 30 years of age, who grew and then retired in the organization. As a result, there has been no diversity and healthy pressure for quality improvement within BI’s rank and file. This tradition of cultural recruitment has, unfortunately, been transmitted to the OJK.

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