A judicial review hearing of Law on Financial Sector Development and Reinforcement to hear the House and the Government’s expert, Wednesday (12/4/2024). Photo by MKRI/Ifa.
JAKARTA (MKRI) — Constitutional law expert of the Law Faculty of Atma Jaya University of Yogyakarta W. Riawan Tjandra said the Finance Minister’s authority to approve the Deposit Insurance Corporation’s (LPS) operational annual work plan and budget (RKAT) is the manifestation of the ordinance function of the Finance Ministry, which manages fiscal policies in bureaucracy. He asserted that the word “approval” in Article 7 point 57 of Law No. 4 of 2023 on the Financial Sector Development and Reinforcement (PPSK Law) does not have to be interpreted as a hindrance to LPS’ independence.
“The term ‘approval’ does not mean external intervention against LPS because the word ‘approve’ has a broad meaning,” Riawan said virtually at the hearing for case No. 85/PUU-XXII/2024 set up to hear the House of Representatives’ (DPR) and the President’s expert’s testimonies on Wednesday, December 4, 2024 in the plenary courtroom.
He continued that upon observation, empirically, the phrase “approval of the Minister of Finance” is actually far from the issue of constitutionality, but rather has a bureaucratic technical meaning so that the Government specifically the Finance Minister can ensure the adequacy of the budget for LPS’ operational activities as stipulated in Article 86 paragraph (2) letter a, Article 86 paragraph (6), and Article 86 paragraph (7) letter a of the PPSK Law. However, these provisions remain consistent in explicitly regulating LPS’ independence because the Finance Minister’s approval is only limited to the RKAT for operational activities and Article 86 of the PPSK Law is locked with a norm that reflects LPS’ independence, so further provisions regarding the form and composition of the RKAT are regulated in the Board of Commissioners’ Regulation.
Riawan also said that the attempt to reduce LPS’ independence through the regulatory norm of “approval of the Minister of Finance” to LPS’ RKAT never existed. The Finance Minister’s approval mechanism is only focused on the RKAT for operational activities, not on guarantee policy, policy guarantee, fund placement, bank resolution, and liquidation of conventional and sharia insurance companies.
“Implementation in the empirical domain is also carried out carefully by making a memorandum of understanding between the Finance Ministry and LPS on the procedure for reviewing LPS’ annual work plan and budget for operational activities and capital expenditure budget,” Riawan said.
Placement of LPS Funds
The House’s statement delivered by House Commission III member of Gerindra Faction Martin D. Tumbelaka said the Petitioners’ arguments regarding their constitutional losses as Indonesian bank customers if the lower requirements for banks to be able to access LPS’ fund placement also increasing the risks that LPS must borne and thus impacting LPS’ authority to guarantee customer funds are unfounded. Through Law No. 4 of 2023, LPS’ authority related to the placement of funds in banks is permanent and can be done at any time when necessary. The authority was granted to LPS in order to ensure a variety of options to handle the bank before its condition gets worse.
Tumbelaka explained that the placement of funds by LPS cannot be considered the implementation of Bank Indonesia’s (BI) function as lender of last resort because the purposes and nature are different. LPS conducts fund placement as a step to strengthen the capital and stability of banks, which is the function of risk minimizer and early intervention.
“The placement of funds by LPS is not a substitute or the last step applied if the bank does not obtain liquidity loans from BI,” he said.
Also read:
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Petitioners’ Expert: Finance Minister Intervenes by Approving LPS’ Work Plan-Budget
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 articles, which authorize 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 LPS annual work plan and budget in these articles raises legitimate doubts on the customers’ side regarding the legal certainty that 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.
Wednesday, December 04, 2024 | 16:54 WIB 31