In a blow to the Finance Ministry, the House of Representatives on Thursday refused to pass a bill that would set in place a contingency plan to help the country deal with the threat of an economic crisis.
The bill, dubbed the financial system safety net (JPSK), is crucial in preventing a possible systemic threat to the financial sector, and has currently been temporarily enacted by the government in the form of regulation-in-lieu-of-law.
“The proposed JPSK law may lead to moral hazards by granting the finance minister greater power,” said Taufiq Hidayat of the Golkar Party, the House’s largest faction.
Legislators also fear the responsibility and authority it entails may give rise to abuses of power, more so because the government and the central bank will be immune from future prosecution over their policies.
Under the bill, a team called the Financial System Stability Committee (KSSK), headed by the finance minister and with the central bank governor as a member, will have full authority to launch concerted measures to cushion any threat to the financial system.
These include the immediate release of taxpayer money to bail out banks and non-banking financial institutions.
KSSK-initiated measures will not be subject to future litigation should they flop, but they can be prosecuted should a criminal act be involved.
“The immunity of Bank Indonesia and the government (from prosecution) is in question,” said Martowo Mitrohardjono of the National Mandate Party (PAN).
House Speaker Agung Laksono asked the government to submit a new bill on the JPSK before Jan. 19 next year.
The government issued the regulation-in-lieu-of-law on the JPSK on Oct. 16, following the stock market rout and currency depreciation that were indicative of a looming economic crisis.
The regulation will expire on Jan. 15, 2009.
In response to the House decision, Finance Minister Sri Mulyani Indrawati said the government would submit a revised bill soon.
“Some factions rejected the proposed bill, while others asked for more elaboration. Their concerns will be accommodated in the bill,” she said.
She also ensured there would be no “power vacuum” in the effort to safeguard the economy against external threats, saying the government had prepared other mechanisms.
“We will use all existing mechanisms, including Article 23 of the 2009 state budget law, the BI law, and the memorandum of understanding between BI and the Finance Ministry (signed in 2004 to establish a financial system stability committee),” she said.
Under Article 23, the government is allowed under certain conditions to allocate new spending not stated in the budget, or shift spending allocations between programs or between government agencies to protect the economy.
Faction stance on the bill
Reject the bill
1. Indonesian Democratic Party of Struggle (PDI-P)
2. National Mandate Party (PAN)
3. Reform Star Party (PBR)
4. National Awakening Party (PKB)
Disagree with the bill
1. Golkar Party
2. Democratic Pioneer Star (BPD)
Agree with the bill
1. Democratic Party
2. United Development Party (PPP)
3. Prosperous Peace Party (PDS)
4. Prosperous Justice Party (PKS)
1. Immunity arrangement for government and BI
2. Overconcentration of power
3. Undermining of central bank’s independence
4. Shrinking role for legislators
5. Sketchy funding for bailouts