The OJK Empowerment Ruse

ATTEMPTS by the House of Representatives to revise the Law on Financial Sector Development and Strengthening (P2SK), claimed to be aimed at bolstering economic stability, now appear to be a Trojan horse for the independence of the Financial Services Authority (OJK). Rather than enforcing its oversight function, the move risks placing the OJK under the thumb of House of Representatives politicians.

The two main instruments being employed to rein in the OJK’s role as “arbiter” of the financial industry are related to the selection mechanism and the budget scheme. First, the proposed amendment to Article 11, paragraph 2, which makes the formation of a selection committee optional under the pretext of “emergency conditions” or “market anomalies.”

This clause presents a dangerous loophole. Without an independent and transparent selection committee, the president has discretionary authority to nominate candidates for the Board of Commissioners to be directly elected by the House. If this mechanism is approved, the OJK risks no longer being staffed by pure technocrats or independent professionals, but by handpicked individuals who have been selected to safeguard certain political interests.

Second is the proposal to eliminate industrial levies and replace them with funds from the State Budget or surpluses from Bank Indonesia and the Deposit Insurance Corporation (LPS). The argument by the Financial Commission of the House of Representatives, that industrial levies create a conflict of interest, is based on flawed logic. On the contrary, a self-financing scheme, or industrial levies, is an ideal model for ensuring that regulators remain independent from government fiscal and political interventions.

Withdrawing OJK funding from the State Budget would be tantamount to handing over the institution’s control to the House of Representatives. While the House does have budgetary functions and authority, it is well known that these roles are often used as a tool for political bargaining.

The independence of a regulatory body is indeed not determined by where its operational budget comes from, but by who selects its leaders. In state theory, institutions such as the OJK are established precisely to separate the political domain from the market domain in order to maintain credibility. Comprehensive industrial levies prevent dependence on a single entity because the cost burden is shared collectively by all market players.

What should be strengthened in the revision of the PS2K Law is how OJK commissioners—who are funded by industrial levies—can maintain a vigilant and thorough oversight, be free from intervention when making policies, and be impartial when handling disputes in the financial sector.

Finance Minister Purbaya Yudhi Sadewa assures that this revision will maintain the institution’s independence. However, the claim of “better coordination” in this draft may be considered as merely an illusion. What kind of coordination can emerge when one party is free to intervene in the budget and meddle with the composition of OJK commissioners?

Let us not forget that during the 1998 crisis, when the central bank was not yet independent, monetary policy was subject to political pressure, and massive injections of liquidity took place in the midst of the crisis, which ultimately ended up devastating the economy.

Allowing the OJK, along with Bank Indonesia and other institutions, to lose their independence to satisfy the politicians’ thirst for power is a very dangerous step backward. If the OJK is forced to bend and bow to political interests, we are only paving the way for a future systemic crisis.