Satria Sambijantoro, Jakarta – President Joko "Jokowi" Widodo is considering a plan to broaden the authority of the Deposit Insurance Corporation (LPS) and provide its executives with legal indemnity during economic crises.
The President held a closed-door discussion with LPS executives at the State Palace on Thursday, with the meeting also attended by top officials from the Finance Ministry, Bank Indonesia (BI) and the Financial Services Authority (OJK).
The LPS, whose role is to guarantee citizens' deposits in the banking system, wishes to expand into the non-banking sector, meaning that the corporation could guarantee citizens' financial products such as insurance, the President's Communications Team said in a statement distributed after the meeting.
In the meeting with Jokowi, The LPS also suggested that the agency should be authorized to guarantee all deposits in the banking system, regardless of their value, at times of economic crisis.
At the moment, the LPS only guarantees deposits worth less than Rp 2 billion (US$149,009) only. Jokowi also promised that the new Financial System Safety Net (JPSK) bill, expected to be passed as soon as this year, would be designed in a way that could legally protect LPS executives if they impose strategic policies during an economic crisis.
"According to the President, after the JPSK bill is approved, the LPS will have a strong legal backing that will guarantee protection for our banking system and its depositors," the President's Communications Office stated.
The draft of the JPSK bill, a copy of which was recently obtained by The Jakarta Post, contains an article (31) that stipulates that all actions performed by LPS in its management of systematically important banks during a crisis would be "legally legitimate".
In the bill, the clause that relates to legal indemnity refers to LPS only, as the privilege is not granted to other members of the Financial System Stability Committee (KSSK) such as the Finance Ministry, BI, and OJK.
The bill also stated that the government could lend funds to the LPS in times of crisis, paving the way for the corporation to utilize state funds if it bumps into liquidity difficulties during the management of systematically important banks.
"It may not refer to a specific legal impunity [for LPS], but rather legal protection for all policymakers when they perform their duties," LPS chairman Heru Budiargo said at the State Palace, when asked about the JPSK bill.
Formed in 2004, the LPS was designed to increase public confidence in the nation's financial system, with its deposit guarantee scheme designed to prevent banking rush in a tight liquidity environment, such as during the 1997-1998 Asian financial crisis.
In 2008, LPS stood at the center of public controversy when the corporation, under the command of the Finance Ministry and BI in the KSSK, injected a Rp 6.7 trillion ($499 million) bailout to Bank Century and took over its management, with politicians at that time questioning the potential systemic risks posed by the small-sized lender.
Currently facing investigation in the Bank Century bailout case are former vice president Boediono, who acted as BI governor in 2008, and former finance minister Sri Mulyani Indrawati, who acted as the head of KSSK at that time.
"We must admit that the Bank Century case has prompted a kind of trauma for economic policymakers," said LPS commissioner Fauzi Ichsan.
Fauzi argued that a stronger role for the LPS in the economy, supported by a clear step-by-step crisis management protocol, could help tackle future shocks in the economy by promoting a prevention rather than reaction approach.
Source: http://www.thejakartapost.com/news/2015/07/24/jokowi-considers-turning-lps-superbody.html