Dealing with financial crisis Chandra Kusuma  ;  An observer of international finance cooperation; Working at the Center for Regional and Bilateral Policy at Fiscal Policy Agency in the Finance Ministry

JAKARTA POST,  27 Januari 2014

                                                                                                                        

                                                                                         

                                                      

Since the decision of the 2009 G20 London Summit to establish a successor to the Financial Stability Forum (FSF), the Financial Stability Board (FSB) has emerged as one of the key international bodies for coordinating at the international level the work of national financial authorities and international standard setting bodies.  It also develops and promotes the implementation of effective regulatory, supervisory and other financial sector policies (financialstabilityboard.org).  The summit’s decision and the establishment of the FSB indicated the focus of the global financial agenda had shifted from boosting growth and investment to financial stability and global resiliency. International bodies, international financial institutions and national authorities are devoting their resources to establishing or providing support to financial stability and resilience at the national, regional or global level. Upon the enactment of Law No. 21/2011 on the Indonesian Financial Services Authority (OJK), domestic financial stability issues in Indonesia will be served by the Coordinating Forum on Financial System Stability (CFFSS). Establishing required coordination across many agencies could create delays at a time when quick action is needed. Moreover, different regulators can have different supervisory philosophies.  These potential impediments to a timely response suggest that regulators need to discuss the possibilities associated with financial crisis on an ongoing basis, long before an actual event.  These discussions should encompass possible actions that might be needed and the information that should be on hand to shape those actions in the public interest.  This is one of the major goals of establishing CFFSS, which is chaired by the finance minister, and consists of the OJK chairman, the central bank governor and the Indonesia Deposit Insurance Corporation (IDIC) chairman.  The concept may seem flawless. Yet, we may recall the case of Bank Century whereby the CFFSS at that time (minus the OJK) decided to bailout the bank. This is not to discuss who should be blamed for the controversial bailout.  Nevertheless, one thing for sure, there was a flaw in the system causing either officials to exploit that flaw or the system itself to be vulnerable to errors. The members of the CFFSS need to learn from the controversy and take precautionary measures to avoid such a case befalling the CFFSS.    At the regional level, Indonesia is actively engaged in the work and management of the Chiang Mai Initiative Multilateralization (CMIM), a regional liquidity support arrangement for the ASEAN+3 countries (ASEAN countries along with China, Japan and Korea). The CMIM, along with the ASEAN+3 Macroeconomic Research Office (AMRO), serves as the regional financial stability mechanism, providing surveillance activities and currency swap arrangements. This is something similar to the CFFSS at regional level. Recently, there has been an initiative to merge the CMIM and AMRO to provide a more effective mechanism as the financial stability backbone of the ASEAN+3. Meanwhile, at the global level, Indonesia, as one of the members of the FSB, has committed to pursuing the maintenance of financial stability, maintaining the openness and transparency of the financial sector, implementing international financial standards and agreeing to undergo periodic peer reviews, using among others, data from the International Monetary Fund (IMF) and World Bank financial sector assessment program (FSAP) reports. This is perhaps the mechanism that most people are aware of.  The discussion arising from the above is about reshaping national or regional arrangements with the global financial architecture and helping global financial stability. With systemic or regional shocks, regional arrangements and the IMF may have to join forces.    Nevertheless, domestically, the challenge for a successful CFSS in Indonesia also remains. It may be still too early to assess the effectiveness of the CFSS, yet financial crisis or turbulence may come unexpected.  There is still a lot of homework to be carried out for a regional CFFSS to perform effectively in order to deal with a regional financial crisis. ●