The amended Law on the Development and Strengthening of the Financial Sector (P2SK Law) was passed last month. There have been fundamental changes. Now, the House of Representatives (DPR) can propose the dismissal of the Governor of Bank Indonesia (BI) along with other deputies. It can also “fire” commissioners of the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS) based on the “subjective judgment” of DPR members. Thus, BI, OJK, and LPS are no longer independent. The Legislative Branch
Consequently, when news broke that the amendments to the P2SK Law were passed during a DPR Plenary Session—coinciding with rumors of a change in the BI Governor—the market wasn’t reading the text of the law. The market was reading the political context. And in the world of finance, as we’ve seen time and again, perception is often just as powerful as fact.
In line with this, in many countries—regardless of the government or whoever is in power—there is always the temptation to influence this lifeblood. The temptation to push interest rates lower in the name of rapid growth. The temptation to print money to finance flagship projects. The temptation to pressure the central bank to align with the political calendar, not the economic one.
In Infobank’s view, independence does not mean being beyond oversight. However, this is where a fatal error often creeps into public debate. Independence is frequently misunderstood as unlimited freedom, as a state within a state, or as an ivory tower immune to scrutiny. Nothing could be further from the truth.
All major central banks around the world are subject to oversight. Parliaments have the right to demand explanations. The public has the right to know the policies being implemented. Transparency is, in fact, a cornerstone of the credibility of modern central banks. However, there is a very fine line—as thin as a silk thread—between oversight and control. Banking
Take the Federal Reserve (the Fed) in the United States, for example. Jerome Powell, the Fed Chair, regularly appears before Congress. He answers tough questions from senators and members of Congress. He explains why interest rates are rising, why quantitative easing is being implemented, and why inflation projections are changing.
However, at the end of those grueling sessions, Congress cannot remove Powell simply because it dislikes his answers. Congress cannot replace the Fed Chair simply because interest rates are considered too high ahead of an election.
In the United Kingdom, the Treasury Committee of the House of Commons holds hearings with the Governor of the Bank of England. The questions are sometimes sharper than a scalpel. However, this mechanism serves the purpose of public accountability, not as a tool for replacing officials. The same applies in the European Union and Japan.
“Evaluation” is a beautiful word. It sounds democratic, participatory, and responsible. Who could possibly object to evaluation? Shouldn’t every public official be evaluated? Shouldn’t power be kept in check?
However, like many terms in the world of politics, “evaluation” can have two faces. The first face is evaluation aimed at strengthening institutions—measuring performance, identifying weaknesses, and driving improvement.
The second face is evaluation aimed at increasing the influence of power over institutions—creating dependence, instilling fear, and opening the door to intervention. If that is the case, then the House of Representatives (DPR) is a “powerful” institution vis-à-vis the independent agencies BI, LPS, and OJK. Yet, on the other hand, the DPR clearly appears to be “trembling with fear” in the face of the current government.
This is where we must pause for a moment and ask the most fundamental question: Is the amendment to the P2SK Law truly intended to strengthen financial sector governance? Or does it create a new political avenue to influence the leadership of the OJK, LPS, and BI?
The central bank (in this case, BI) and the OJK were established not to serve the current government, but to keep the economy alive after governments change. They are institutions that transcend electoral cycles. BI governors come and go. Governments come and go. However, the rupiah—which these institutions safeguard—must remain stable.
Now that the House of Representatives (DPR) has the authority to evaluate and dismiss the BI Governor as well as OJK and LPS commissioners mid-term, the question is no longer whether such evaluations are necessary. The question is: who will be in control of these evaluations? Will they be based on measurable, objective criteria, or on fluid and ever-changing political preferences?
The DPR must indeed exercise oversight. Oversight is the heart of democracy. However, when oversight turns into the ability to exert control, when evaluation becomes a tool for removal, democracy begins to enter dangerous territory—a realm where institutions become mere facades for power.
The real issue isn’t whether a Bank Indonesia Governor, an OJK Commissioner, or an LPS Chair deserves to be evaluated. Of course they do. Every public official must be prepared to be evaluated. That is a consequence of the power granted by the people through democratic institutions. Banking
So, before all that happens, it’s worth asking once more: is this amendment intended to oversee or to control? It’s clear. It’s to control the BI, the LPS, and the OJK. The government is too dominant, backed by the Indonesian House of Representatives (DPR RI). And when evaluation turns into a political tool, what’s at stake isn’t the officials’ positions, but the credibility of the national financial system.
Unfortunately, the P2SK Law has already been passed. And Indonesia will return to a time when the BI was not independent, and the OJK was pressured to toe the government’s line—even when government policies endangered the financial sector. If that is the case, financial risks in Indonesia will actually grow even larger because of this P2SK Law. (*)
