Financial Reform Perppu: Efforts to Degrade BI and OJK
Professor of STIE Perbanas Surabaya
Currently, there are wide circulation plans for drastic reform of financial authority institutions in Indonesia. In many mass media reports, the Government Regulation in Lieu of a Law (perppu) that will be issued will make all financial authorities independent, namely Bank Indonesia (BI), the Financial Services Authority (OJK), the Deposit Insurance Corporation (LPS) and the Financial Sector Stability Committee ( KKSK) in one command. The reason is because the policies of the financial sector authorities (BI, OJK, LPS) were accused of being an obstacle to economic recovery due to the Covid-19 pandemic.
This means that after the issuance of this Perppu, Law Number 23/1999 concerning BI, Law Number 21/2011 concerning OJK, and Law Number 24/2004 concerning LPS will no longer apply. This means that independence in economic management is history. A statement from the Coordinating Minister for the Economy, Airlangga Hartarto, briefly gave a signal that the government was "annoyed" with BI and OJK for their policy response in the midst of the economic crisis associated with Covid-19. There is an unsynchronized BI-OJK policy in responding to the crisis. There is a gap in these two institutions. However, the problem is whether this perppu becomes the solution or triggers new problems.
With language that means "multiple interpretations" but at the same time strengthening the issuance of the perppu, Minister of Finance Sri Mulyani Indrawati stated that financial authority reform is needed to respond to the crisis considering that the current schemes and organizations of financial authorities are not designed to respond to major crises like the current one. In essence, the aim is to strengthen financial system stability. This Perppu is one of the government's “extraordinary” steps in legislation so that the economy does not fall into a deeper crisis.
As a technical minister who is definitely the driving force behind the issuance of this reform perppu, there is an impression that the Minister is hiding the contents of this perppu. Naturally, there was a feeling of "bad taste" because as the initial supporter of the establishment of the OJK, it was not nice to be the "executor" of the existence of the OJK. So it is only natural that you are still shy about this perppu. Moreover, currently there is "resentment" especially at BI and OJK because the perppu which is so crucial to the existence and continuity of state institutions is carried out "slinthat-slintut" aka not open. Impressed that the Ministry of Finance has relegated BI and OJK as object and operator level.
Since the Covid-19 pandemic, President Jokowi has publicly expressed his anger three times. Some even went viral because the State Secretariat broadcast it openly. The president was angry that several ministers did not have a sense of crisis in dealing with this situation. The President is disappointed with the ministry's performance regarding the current Covid-19 budget absorption. The President has even threatened to carry out a cabinet reshuffle, or remove the ministers who have "done" their work.
Will the financial reform perppu solve the current national economic problems? The answer can be yes or no. It seems that the potential problems will be more numerous. If this perppu is deemed not credible because of the requirements of political interests (politically heavy motivated) then the impact will be worse for the national economy. Moreover, in general, BI and OJK are considered better in governance to international investors than the government. If this happens, the government needs to be aware of “capital flights”. To be honest, the reputation of Indonesia's financial sector is currently in a “nadir” position.
If the issuance of this perppu is perceived as good, of course there will be no distressive impact. However, by looking at the “slinthat-slinthut” sign, it can be assumed that there is a hidden agenda that economically and politically needs to be studied later, namely who will benefit from this policy.
Whatever happens, if this perppu is published it will create institutional trauma. Independent state institutions that are considered not performing or not in accordance with the will of the "government" (politics) are very easy to be "couched" in a constitutional manner for all reasons that can be narrated.
The current institutional struggle can be described as a form of power struggle between politicians (politicians) and professionals. As OJK knows, BI and LPS are operated and controlled by professionals who have no direct political affiliation. Because of their professional qualifications, they have the power to manage extraordinary economic resources. In general, these institutions are filled with people who act according to rational and long-term economic perspectives and reason.
Meanwhile, politicians, who have to go through a struggle to win the conscience of voters, who are in order to gain power, are in many ways less powerful than professionals in managing economic resources. That's why politicians, everywhere, want to master all aspects. We can see what happens in certain state institutions where former politicians have become the majority leaders. Whether this Perppu will become an entry point for them, history will prove it.
To be honest, the current ineffective handling of the economic crisis due to Covid-19 is actually more due to the failure to optimize Government Expenditures. Budgets are not or are difficult to absorb because "accounting" trumps common sense. The President stated the need for more state spending. On a technical level, everyone is afraid because of wrong accounting, imprisonment and consequences. Budget accounting systems and procedures have made it a “source of bottleneck” for the state spending process. Even government financial accounting can change the essential truth as a mistake and vice versa the essential error seems to be true. For the Director Generals, it is better to be scolded by the Minister or the President than to violate "accounting".
Financial Sector Condition
The Covid-19 pandemic has made economic activity seem to have stopped suddenly so that economic growth is estimated to be negative 5.3% this year. Negative growth does not only occur in Indonesia but in almost all countries. Europe is expected to grow -7%, America -6% and Japan -5.3%. In Southeast Asia, negative economic growth also occurred in the Philippines -16.5%, Singapore -13.2%. Only China and Vietnam will enjoy positive growth.
The financial sector was generally affected by the crisis. However, overall banking liquidity is still safe. The availability of liquid assets compared to non-core deposits (NCD) is still around 128%. This means that the available liquid assets are 28% greater than all non-core deposits. However, in book bank 1 the condition continued to worsen due to this pandemic. Meanwhile, on the credit side, there was an increase in NPLs, namely 3.22% (gross). It certainly shouldn't be read that simply. As OJK knows through its regulations, OJK Regulation Number 11 / POJK.03 / 2020 makes the credit risk reporting system change. The POJK aims to act as a stimulus for banks facing a pandemic.
Credit growth is still low and this is natural because banks hold credit while borrowers are also reluctant to borrow due to high uncertainty. Although in general credit has experienced positive growth, areas with large Covid-19 cases, such as East Java, South Kalimantan and South Sulawesi, have been seriously affected by credit growth, which is negative.
What is somewhat surprising is the fact that the growth rate of Third Party Funds (TPF) is relatively stable at around 8.53%. Unfortunately, this also opens up the fact of our economic dualism. During this pandemic the value of small savings decreased, while group savings above Rp1 billion increased as a result of the corona because they could not shop and consume normally, so their savings increased.
In general, the synergy between BI and OJK policies in maintaining financial system stability is adequate. To maintain economic liquidity, BI has taken many steps including loosening liquidity with a money creation policy (Quantitative Easing) such as the purchase of SBN by BI. This policy is a big sacrifice for the monetary authorities. To support interest rate stability, BI also lowered the BI Seven Day Repo Rate (BI7DRR) by 0.75% to 4%. Now the reserve requirement is 2% for conventional banks and 0.5% for Islamic banks. In order to become liquidity, the Macroprudential Liquidity Buffer (PLM) rose to 6% for conventional banks and 4.5% for Islamic banks.
Meanwhile, the problem of absorption of the APBN budget still has no significant progress. The National Economic Recovery Budget (PEN) is around 21% on average. There is even a Ministry that has just spent 0.86% while the highest is 25.26%. As an important instrument for national economic recovery, the slow use of the budget has made economic contraction worse. Hopefully the President realizes that the current problems stem from the government side of the bureaucracy, not the financial authorities, so that they are more worthy of reform.
This article was published on SINDONEWS.com on Monday, 31 August 2020 at 06.13 WIB