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Govt plans omnibus bill on financial system
The government plans to draft an omnibus bill to tighten surveillance of the financial system as it acknowledges that legal loopholes have limited its authority in the handling of the ongoing cases of mismanagement in state-owned insurance companies
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span>The government plans to draft an omnibus bill to tighten surveillance of the financial system as it acknowledges that legal loopholes have limited its authority in the handling of the ongoing cases of mismanagement in state-owned insurance companies.
Finance Minister Sri Mulyani Indrawati said the omnibus bill on the financial system would revise regulations related to financial services, including in the Banking Law and the Financial System Crisis Prevention and Mitigation Law.
Sri Mulyani said the country still lacked the necessary legal basis to oversee crises in the nonbank financial sectors, adding that the law would be one of the highest priorities. The legal loopholes have complicated the handling of troubled state insurers, including Asuransi Jiwasraya.
“We do not have the scope to discuss nonbank financial services so we need improvements in the legal framework to prevent and manage crises," said Sri Mulyani in Jakarta on Wednesday. She referred to the Financial System Stability Committee (KSSK), whose main task is to maintain financial stability and prevent crises in the banking sector.
The Supreme Audit Agency (BPK) has indicated a potential “systemic risk” over Jiwasraya’s failure to pay out Rp 12.4 trillion (US$908 million) on customer policies that matured in December 2019. The case is currently being investigated by the Attorney General’s Office and the BPK with corruption allegations involving former Jiwasraya executives and two business tycoons.
House of Representatives Commission XI overseeing financial affairs has formed a working committee to oversee Jiwasraya, as well as state insurers Asuransi Jiwa Bersama Bumiputera and the massive collapse in value of Asabri’s investment portfolio that may disrupt their payments on matured policies.
“Anything that may have the potential to disrupt the financial system will be discussed during the formulation of the new omnibus bill to make the system more stable,” Sri Mulyani said at a press briefing following a KSSK meeting.
The KSSK members include the finance minister, Bank Indonesia (BI) governor, the Financial Services Authority (OJK) chairman and the Deposit Insurance Corporation chairman.
Sri Mulyani added that the government would establish an agency that could guarantee insurance customers’ policies to ensure payouts, as stipulated by the 2014 Insurance Law. The law requires the establishment of a policy guarantee agency by 2017.
“For the establishment of the policy guarantee agency mandated by the [Insurance Law], we will formulate based on and using corridors that aim to create trust in insurers while also avoiding moral hazard,” she said.
Indonesian Life Insurance Association executive director Togar Pasaribu called on the government to establish such an agency to support the insurance industry.
“We hope that the government will continue to conduct risk-based supervision as an early measure to prevent the failure of insurance companies to pay its customers’ policies,” said Togar in a press statement.
OJK chairman Wimboh Santoso said the authority would strengthen supervision of the financial services sector by obliging insurance companies to invest in registered-only capital market products.
Contacted separately, University of Indonesia senior economist Arie Kuncoro told The Jakarta Post that the committee was hesitant in resolving these issues because of the lack of a legal basis.
“The country doesn’t have a definition of the so-called ‘systemic impact’ so decision-makers are hesitant to decide whether to bail out these problematic companies,” said Arie. He added that the country would need a new law to define a crisis or systemic impact on the financial system.
“Decision makers do not want to bail out these companies because they could be imprisoned in the future if their successors do not consider the situation to be a crisis, such as in the Bank Century case,” Arie said. High-ranking ministers have reiterated several times that the government will not bail out Jiwasraya.
The omnibus bill on the financial system, Arie said, must consider investors’ behavior as well as obliging insurance companies not to invest in high-risk investments such as stocks.
Despite the Jiwasraya and Asabri scandals threatening the financial system, Indonesia managed to maintain its financial system stability amid the global economic slowdown in the fourth quarter of 2019, the KSSK has announced.
Sri Mulyani said the country needed to keep alert to some risks including from external factors such as geopolitical tensions in the Middle East, as well as from domestic factors including the problems in the insurance industry.
Meanwhile, BI Governor Perry Warjiyo said the central bank would continue its accommodative monetary policy this year to support economic growth, after slashing its policy rate four times last year by 100 basis points to 5 percent.
