The Ministry of Finance’s advisor for financial services and capital market Arief Wibisono delivering the Government’s testimony at a judicial review hearing of Law on Financial Sector Development and Reinforcement, Monday (10/7/2024). Photo by MKRI/Panji.
JAKARTA (MKRI) — The Ministry of Finance’s advisor for financial services and capital market Arief Wibisono represented the President/Government to testify before the Constitutional Court (MK) on Monday, October 7, 2024. He said the Deposit Insurance Corporation’s (LPS) independence is maintained despite the Minister of Finance having the authority to approve the LPS’s operational annual work plan and budget (RKAT).
“The Minister of Finance’s approval of the LPS’s operational RKAT is unrelevant to the decisions, policies, or actions that the LPS take, so its independence in decision-making remains,” Arief said at a hearing for case No. 85/PUU-XXII/2024 to hear the House of Representatives (DPR) and the President in the plenary courtroom. The House of Representatives did not attend the hearing and requested a reschedule.
The case relates to the judicial review of Law No. 4 of 2023 on the Financial Sector Development and Reinforcement (PPSK Law). Arief said the Minister of Finance’s approval of the LPS’s operational RKAT is philosophically based on distribution of power that Indonesia began to adopt after the amendment to the 1945 Constitution, resulting in the logical consequence of checks and balances among state institutions.
He explained the Minister of Finance’s approval only concerns operational budget consisting of general and administrative expenses. Meanwhile, the LPS’s RKAT related to policy, including guarantee policy, policy guarantee, fund placement, bank resolution, and liquidation of insurance companies/sharia insurance companies, are determined by the board of commissioners without requiring the Minister of Finance’s approval.
The Minister of Finance’s approval of the LPS’s operational RKAT, he elaborated, is based on Article 4 of the PPSK Law, which stipulates that the Minister of Finance is the coordinator of the Financial System Stability Committee (KKSK), which consists of Ministry of Finance, Bank of Indonesia (BI), Financial Services Authority (OJK), and the LPS. As the KKSK’s coordinator, the Minister of Finance has sufficient interest to ensure that the LPS has sufficient liquidity and that funds used for operational activities are allocated efficiently.
Based on this explanation, there are at least three legal policies of the PPSK Law that grant the Minister of Finance authority, including to approve the LPS’s operational RKAT as a form of the Government’s checks and balances of the LPS through the Minister of Finance; to approve the LPS’s operational RKAT to ensure financial resources are in good condition to carry out its role in the Financial System Safety Net (JPSK); and to approve the LPS’s operational RKAT to maintain LPS’s accountability and good governance.
In addition, he said the LPS’s authority in the placement of funds is part of the JPSK along with BI, OJK, and the state (through the Minister of Finance). The LPS’s authority concerns early involvement and risk minimizer in preventing the bank’s condition from worsening. The LPS’s authority to place funds arose after a request from the OJK. The LPS’ fund placement function is different from BI’s function as “lender of last resort.”
The authority of LPS to place funds in banks undergoing restructuring does not conflict with BI’s authority as lender of last resort. BI still plays a role in providing short-term liquidity for eligible banks, while LPS focuses on handling banks that have potential solvency problems. This separation of roles clarifies the functions of each institution and strengthens the JPSK system.
“Thus, the ‘placement of funds’ by LPS does not shift BI’s function as lender of last resort and instead provides an opportunity for banks experiencing financial problems to continue restructuring efforts,” Arief explained.
He reiterated that the Minister of Finance’s approval of the LPS’s operational RKAT aims to ensure that the use of LPS’s funds is managed in a prudent and transparent manner so that it will maintain public confidence, especially in the LPS (national deposit guarantee system) and in the national banking industry in general. The granting of the LPS’s fund placement authority as part of the risk minimizer strategy not only helps banks that are in trouble, but also strengthens public confidence in the financial system. With this mandate, the LPS can reduce systemic risk, improve financial stability, and protect depositors.
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The Petitioners—two lecturers and one university student—challenge Article 7 points 6 and 57; Article 86 paragraphs (4), (6), and (7) letter a; and Article 276 points 3, 13, and 24 in Law No. 4 of 2023 on the Financial Sector Development and Reinforcement (PPSK Law). Giri Ahmad Taufik (Petitioner I) is a constitutional law lecturer at Djuanda University in Bogor while Wicaksana Dramanda (Petitioner II) is a constitutional law lecturer at the Islam University of Bandung. Mario Angkawidjaja (Petitioner III) is a university student and customer of microcredit bank (BPR) Nusantara Bona Pasogit (NBP) 31 Jatinangor.
They argue that there is potential constitutional impairment due to the enforcement of the article, which authorize the LPS to be able to place funds in banks under restructuring based on requests from the Financial Services Authority (OJK), which could potentially overlap with the authority of Bank Indonesia (BI) as the lender of last resort.
Moreover, the authority of LPS in placing funds in banks under restructuring has different requirements that are easier, in this case, those that do not meet the Short-Term Liquidity Loans based on Sharia principles owned by BI. As a result of this vagueness and overlap, there is the potential to burden LPS, in this case reducing its ability and leading to the failure of LPS to carry out its main function, namely guaranteeing customer deposits, which is a form of protection of the Petitioners' deposits.
In addition, the Petitioners believe government intervention in the form of the Minister of Finance’s approval of the LPS annual work plan and budget in these articles raises legitimate doubts on the customers’ side regarding the legal certainty that the LPS will exercise its authority professionally and based on expertise alone, without political interference. Although independence has accountability limits, the Minister of Finance’s approval authority in these provisions lacks the basis of necessity and balancing.
In terms of necessity and balance, the highly interventionist provisions on work and financial planning for LPS operational activities do not have a strong reason, considering the institutional design of LPS, which is led collectively collegially by all members of the board of commissioners, where all LPS decisions must be made through a process of deliberation for consensus (vide Article 7 point 46 of Law No. 4 of 2023, which amends Article 72 paragraph (1) of Law No. 24 of 2004).
In their petitums, the Petitioners request that the Court nullify Article 7 points 57 of Law No. 4 of 2023, which amends the phrase “to obtain approval” in Article 86 paragraph (4) of Law No. 24 of 2004; and the phrase “who has obtained the approval of the Minister of Finance” in Article 86 paragraph (7) letter a of Law No. 24 of 2004. In addition, they request that Article 7 point 6 and Article 276 point 13 be declared unconstitutional and not legally binding.
Author : Mimi Kartika
Editor : Nur R.
PR : Fauzan F.
Translator : Yuniar Widiastuti (NL)
Disclaimer: The original version of the news is in Indonesian. In case of any differences between the English and the Indonesian versions, the Indonesian version will prevail.
Monday, October 07, 2024 | 16:18 WIB 132