Sunday, September 26, 2010

IMF Comment on the OJK Plan

This month, the IMF published for the first time Indonesia's comprehensive financial system assessment.

Even with the help of Google, I have not managed to find anyone reacting to the critical comment made by the IMF on the government initiave to establish the new integrated supervisory agency (OJK). My comment on the matter was posted earlier this month.
In fact, overal reception of the IMF report has been cold. Even the central bank (BI) does not welcome it as a source for future improvements, except for the part where the IMF actually supports BI's view on the OJK plan. There is a strong rejection to the IMF's stress test results, which BI considered unrealistic.

Later I found that IMF has cut the tension by pointing out mass media misinterpretations of the stress test results, saying that the results are actually fine...

Having mentioned this episode of a public-relation little battle, I found none or little coverage on other interesting themes in the report such as on Basel II implementation, BI's recent regulatory initiatives and the OJK plan.

Let me quote fully what the report says about the OJK plan:

(para 36). "There are significant risks to bank supervision being transferred out of BI. The risk of a loss of supervisory continuity associated with the transfer of staff to a new organization, as well as concerns about comparability of pay and benefits, may complicate any attempted consolidation and make them more receptive to offers of private sector employment. The risk of a clash of supervisory cultures within a consolidated agency can weaken supervision and compromise information flows during crisis periods. International experience, of which the authorities are well aware, has shown that in some consolidated agencies the tension between market conduct and prudential responsibilities can weaken prudential oversight. Finally, it would seem premature to undertake such an organizational change until the nexus between macro- and micro-prudential supervision has been better defined. Should the authorities proceed with OJK, close integration between BI and OJK would be important to address these risks. This would reconcile the requirement of BI Act with the current global trend," end quote.

I believe the poor reception has little to do with the quality of the assessment. A proof: the Dutch Central Bank is reported to voluntarily request a similar kind of IMF's evaluation of its functioning and that of the Dutch financial sector.

Finding it hard to speculate on reasons why, notabene, the food for thoughts from the first comprehensive financial system assessment is received with little enthusiasm in Jakarta, I herewith close my commentary on the OJK plan...

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