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Former President Director of Bank Negara Indonesia (BNI), Sigit Pramono, as Expert for the Petitioner in the judicial review hearing of the Law on Deposit Insurance Agency (LPS) on Monday (26/2) in the Plenary Courtroom of the Constitutional Court. Photo by Humas MK/Ganie.

The establishment of the Deposit Insurance Agency (LPS) is a step forward. This is the way the Indonesian nation responded to the experience of banking crisis that hit Indonesia in 1998. This was stated by former President Director of Bank Negara Indonesia (BNI) Sigit Pramono as the Petitioner\'s Expert in a follow-up session of Law No. 24/2004 on Deposit Insurance Corporation (LPS Law) on Monday (26/2) afternoon. 

"The Government established LPS using a Rp4 trillion state budget and LPS is also authorized to receive a guarantee premium from the banking industry, where the funds are used to handle and rescue failed banks, and to cope with banking crisis that may arise in the future without burdening the state budget as it did in the past," Sigit said on the case No. 1/PUU-XVI/2018. 

Sigit explained that in the execution of its duties and functions, LPS settle or handle banks experiencing financial difficulties or failing banks, both in normal economic conditions and in crisis. In the settlement or handling of problematic banks, LPS performs actions like banks. 

Sigit said, working in the banking operational system must be in accordance with general banking practices. The banking world recognizes the term write-off and absolute write-off as one of the efforts to handle problematic loans. A write-off is a bank’s administrative action to remove bad credit from a bank’s balance sheets. 

"The term hapus buku in banking is also known as write-off, when non-recoverable bad loans are written off of the on-balance sheet and recorded on the off-balance sheet. However, banks continue to collect. Meanwhile, absolute write-off is the action to delete the debts that cannot be settled, where they will actually be removed from the bank’s balance sheets, both the on-balance and off-balance sheet. In some sources, it is called absolute write-off," Sigit added. 

Sigit added that the provisions on write-off and absolute write-off have been regulated in various laws and regulations, including Article 69 of Bank Indonesia Regulation No. 14/15/PBI/2012 on the assessment of asset quality of commercial banks, requiring banks to make written provisions and procedures concerning the implementation of write-off and absolute write-off. 

Independent Legal Entity 

Meanwhile, the Government represented by Tio Serepina Siahaan confirmed that the LPS Law establishes LPS as an independent legal entity that will play a role in maintaining banking stability as part of national financial stability. "With the establishment of LPS, it is expected that banking stability can be maintained as early as possible so that the country will avoid direct guarantees as it did in the 1998banking crisis," Tio said. 

In addition, Tio continued, the LPS Law has authorized LPS to formulate policies such as those to execute the task of owning and managing its assets and liabilities as well as those of failing banks, whose settlement is handed over to LPS. 

"The formulation of the LPS Law through the formulation of norms in the LPS Law requires the formulation of the policy as an exercise of such authority, conducted by LPS with due observance of the principles of prudence, transparency, and accountability to ensure the achievement of the duties and functions of LPS as well as to maintain the stability of the national banking system and not to cause risk on the state," he explained. 

Accordingly, according to the Government, the formulation of the articles in the LPS Law is not contradictory to Article 1 paragraph (3), Article 28D paragraph (2), and Article 33 paragraph (4) of the 1945 Constitution of the Republic of Indonesia. 

LPS as Petitioner reviews Article 6 paragraph (1) letter c, Article 81 paragraph (3), and Article 33 paragraph (4) of the Deposit Insurance Agency (LPS) Law. Article 6 paragraph (1) letter c reads, "In carrying out its duties as stipulated in Article 5, the LPS has the following authorities: to manage LPS assets and liabilities." While Article 81 paragraph (3) reads, "The LPS shall be responsible for the management and administration of its entire asset." 

The Petitioners deem the articles not providing guarantee of legal certainty and are contradictory to Article 28D Paragraph (1) of the 1945 Constitution that every person has the right to the fair legal guarantee, protection, and certainty that is mutatis mutandis contrary to the rule of law in Article 1 paragraph 3) of the 1945 Constitution. As we know, one of the principles of a state law is guarantee of legal certainty. 

Meanwhile, Article 33 paragraph (4) on the national economy organized based on economic democracy with the principle of togetherness and fair efficiency. LPS is an institution that serves to maintain the stability of the banking system and guarantee banking customers. LPS business entity will deal with receivables in assets, which is inevitable. (Nano Tresna Arfana/LA/Yuniar Widiastuti)

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