The P2SK Bill Is Considered An Economic Observer Instead Of Weakening The Financial Sector, Is That True?

Illustration (Photo: Doc. Antara)

JAKARTA Senior Researcher of the CSIS Department of Economics, Deni Friawan, expressed his criticism of the Draft Law on the Development and Strengthening of the Financial Sector (RUU P2SK) which is still being discussed by the government and the DPR.

According to him, there are a number of important points that form the basis for the need for executives and legislatures to rethink draft regulations before passing into law products.

First, the P2SK Bill allows members of the BI Board of Governors to come from political parties. Second, there is a mandate imposed on BI to maintain growth so that it has the potential to reduce the focus of the central bank in maintaining inflation and exchange rate stability.

Third, members of the OJK Board of Commissioners (ADK) are planned to be elected through the selection committee (pansel) formed by the DPR which can erode ideal values because there are no principles of checks and balances between the executive and the legislature.

"It's not that it encourages the strengthening of institutions and the financial sector, but the P2SK Bill actually has the potential to weaken and damage financial system stability," Deni said in a written statement, Tuesday, December 6.

Deni added, if this article is still ratified, the central bank will have the opportunity to receive pressure from certain political parties.

"This is an extraordinary setback. The financial authority institution will be vulnerable to intervention by political parties, parliament and the government," he said.

Deni also explained that previously in the OJK ADK candidate election, the government first formed a selection committee to be submitted by the President to the DPR.

"The commitment to central bank independence can be negative for the economy of a country," he said.

As a companion, he shared the Turkish experience of revoking the independence of the Turkish Central Bank (TCMB). Since 2021, Turkish President Recep Tayyip Erdoyan ordered the TCMB to lower interest rates many times, even though the country's inflation has reached 36 percent.

As a result, Turkish inflation in October 2022 reached 85.51 percent, the highest in the last 24 years. In addition to revoking TCMB independence, Erdogan also revoked regulations requiring the Deputy Governor of TCMB to have experience for 10 years as a monetary economy practitioner.