Irvan Tisnabudi & Muhamad Al Azhari – The finance minister and experts are pressuring lawmakers to deliberate the latest draft of a bill on protocols for handling a financial crisis, to ensure fiscal and monetary authorities have a strong legal basis to take action in such an event.

The bill has been resubmitted to the House of Representatives several times after it was rejected at the end of 2008.

The need for a strong legal basis for decision makers to face a crisis has gained urgency amid fears of the effects of Europe's debt crisis spreading to Asia, though so far its impact is mostly noticeable only within the financial market sector. However, even that could take a toll, causing more financial institutions to collapse, as when the 2008 financial crisis struck the country.

"There needs to be a legal basis for both the government and the central bank to prevent the effects of global financial instability undermining stability here in Indonesia, for example, conducting a bailout for a bank," said Standard Chartered Bank senior economist Fauzi Ichsan, noting that such a law would prevent a case similar to the controversial Bank Century bailout.

Finance Minister Agus Martowardojo said on June 2 that the government had submitted the latest draft of the bill to the House and that he expected a hearing would be scheduled to speed up its deliberation.

He warned on Friday that Indonesia still needed to be wary of the effects of the European debt crisis. Perceptions of weakness could damage Indonesia's economy, he said after a meeting with Vice President Boediono and Naoyuki Shinohara, deputy managing director of the International Monetary Fund.

The latest draft provides the basis for policy on crisis resolution, including frameworks for how the deposit insurance scheme works, emergency liquidity injections from the central bank as the lender of last resort and mechanisms on who takes responsibility for preventing or overcoming a possible crisis.

On Dec. 18, 2008, lawmakers rejected the financial-crisis bill over concerns that some articles could erode the central bank's independence, creating opportunities for corruption and giving too much power to a small group of officials, including the finance minister, to regulate markets.

That draft was actually a more detailed version of the government's regulation in lieu of law (perpu) issued in November of that year to ease the impact of the financial crisis raging at that time.

Since then, the government has revised the draft bill, removing the most contentious part naming the finance minister as the highest decision maker and putting more of that burden on the president.

Not everyone is enthusiastic about pushing the bill through. Fuad Rachmany, the head of the Capital Market and Financial Institution Supervisory Board (Bapepam), was quoted by Kontan news-paper on June 4 as saying the law would not be effective in dealing with a crisis as long as politics still played a big role in shaping government decisions.

"It does not matter on what legal basis a decision is made, if there is no good will from all parties during a crisis, it will be useless," Fuad said. He was referring to how former Finance Minister Sri Mul-yani Indrawati and former central bank governor Boe-diono were blamed for approving a Rp 6.7 trillion ($730 million) bailout of troubled Bank Century.

Some lawmakers were aggressive in trying to oust Sri Mulyani through the use of a special investigation into alleged wrongdoing connected to the 2008 bailout during the height of the global financial crisis.

In her strongest comments on her departure, Sri Mulyani told Britain's Financial Times newspaper on May 27 that her decision to leave the finance minister post to become a managing director at the World Bank was greatly affected by concerted political attacks.

Meanwhile, in the absence of a so-called Financial System Safety Net (JPSK) law, the Finance Ministry, central bank and Deposit Insurance Agency (LPS) rely on a memorandum of understanding they renewed on June 1 on who must do what when a crisis strikes.

Agus declined to say what was different in the deal from the one the three institutions made last September, but he said he hoped at least it could serve as a temporary umbrella for authorities to act if a crisis struck.

Wimboh Santoso, the central bank's chief of financial system stability, said that preparing for a financial crisis was like preparing for a battle.