Refishowcase Business & Finance

There are interesting issues that can be used as lessons, especially for policy makers related to the case of Century Bank bailout, namely the risk of public policy in times of crisis.

In the eyes of government, Century Bank bailout policy is considered rational even if it ditomboki “state money” which swelled to Rp6, 7 trillion. By reason of systemic effects that can result in volume II of economic crisis, the government must act superfast (prompt action) even if paid for with a very expensive price. However, the view both from the parliamentary opposition and even some financial experts consider that the bailout policy is very high cost need not be done.

Besides claimed no significant impact on the national banking system, the government considered a policy that facilitates the banking corporate crime. Strong statement of former Vice President Jusuf Kalla, a former Kabareskrim Susno Duadji, and some economic and legal observers representing the claim. Regardless of the outcome of the case of Century Bank bailout, public policy taken by the government often invites the risk of controversy, especially when government is faced with the global financial crisis.

In the view of risk management expert Professor Kevin Down (2009), a global-scale financial crisis has made the government panic in all countries so that one solution is to make the bailout and nationalize the banks. Unfortunately, for the context of Century Bank, the policy has the potential bailout actually pose a risk of moral hazard.

That is, the government adopted a policy of Century Bank rescue the national economic interest, but actually there are certain interests that are hidden “benefit” certain parties. Moral hazard situation then this is what sparked the suspicion of various parties, especially the parliament, that ended with controversy.

Risk Policy

In a crisis situation like what happened in the case of Century Bank bailout, whatever the policy choices taken by the government at that time full of risk. Government caught in a dilemma situation. Do not take decisive action is confronted with the risk of economic crisis. Instead, taken decisive action means high cost and provoke controversy.

How do I get in the future of public policy does not create economic and political risks are high? There are wise suggestions made by Prof. Kevin Down (2009) related to these issues, considering the level of moral hazard. This means that if a policy of great potential for increasing moral hazard, the policy is considered bad and avoided wherever possible.

Apparently, in the context of Century Bank bailout, the government is less thorough in considering the degree of moral hazard. As a result, as we are working through the Special Committee examine Century, the government is in a position that is not profitable. Public considered that the government, particularly the Minister of Finance and Bank Indonesia, making high-risk policies, especially in law and politics. The next problem, how to minimize the risk of policy moral hazard?

By using a simple analogy of Paul Slovic (2001), high risk-taker’s behavior is more dominant factors shaped by feelings rather than rational. For example, someone decided to smoke and then addiction is more governed by feelings rather than reason. Everyone knows that cigarettes are a health hazard, but because levels feel more dominant, the decision was made to smoke.

By using the analogy Slovic, Century bailoutBank policies that swelled the cost of Rp632 billion to Rp6, 7 billion can be classified cargo policy rational factors tend to be low. Why? First, the swelling cost of the bailout to 1,000 per cent to be irrational.

Although the government argued that there is no harm whatsoever with these numbers, the decision was not preceded by consultation with the Vice President when the President was abroad. Whereas decisions such as inflammation of the bailout costs are a very strategic decision.

As the highest government officials at the time, rational is the vice president should be involved in strategic decision-making. The absence of such consultation mechanisms cause swelling policy impressed bailout costs are made in a hurry so that emotional factors are more dominant than rationality. Second, the government understanding that the funds Deposit Institution (LPS) is not considered state money is also not rational.

Whereas the provisions of state money already provided for in Article 1 No. 17 of 2003 on State Finance. According to state financial experts Baharuddin Aritonang (2009), based on these laws LPS funds into the category of state money. Thus, the search for the source of bailout funds from the LPS, including the use of state money. Consequently, the government is not necessarily easily determine the amount of the cost of the bailout without prior consultation with the relevant public officials.

Third, it is irrational to use the media short message service (SMS) to communicate the decision-making process is very important and strategic. Through a special committee meeting, the public be wondering why the handling of important cases communicated by SMS? Does not the government officials facilitated adequate communication media? Or did consider the case of Century is frivolous cases? Rational, komunikasikebijakanstrategisperlu process carried out with a reasonable mechanism and in accordance with the provisions of applicable law.

Wisdom

Public policies to deal with cases of Century Bank as the global crisis deservedly taken a lesson. First, the rationalization of public policy at the time of crisis can be achieved if the policy-making mechanism involving the relevant authorities. The claim that the government is stuck in a situation that calls for quick handling made should no longer be a reason to ignore the relevant public officials.

If that happens on the other hand, public policy will reap exactly taken a lot of criticism and the potential for allegations of corruption. The second lesson is the bureaucrats should be literate and obedient to the law. Polemics about LPS funds including state money or not really does not need to happen when bureaucrats legal literacy. Using legal consulting services are legitimate, but bureaucrats also have to know the details and consequences of the policy taken.

Therefore, compliance with the law becomes an important factor for the professional bureaucrats who made that policy do not cause a bad precedent in the future. Last but not the least, the public must continue to give an appreciation of the government who dare to take risks in addressing the global financial crisis potential systemic impact.

Economic stability is maintained until today at least is the result achieved by the Centry Bank bailout policy. What is important is the law enforcement authorities need to track the flow of bailout funds so that they can be found in the presence or absence of corruption.

European governments this year seeks to overcome the financial crisis. Some officials expressed it borrows heavily from the first 16 countries out of recession.

Efforts are made to reduce the national debt level that could disrupt European stability and growth to the front.

As reported by the AFP, Sunday (3/1/2010), rising budget deficits, low growth and support the banking sector is a significant trigger factor.

“(The average in the European region have) public debt could reach 84 percent of GDP (gross domestic product) in 2010, up from 18 percent points from 2007,” said one official. Or even far above the treaty limit of 60 percent.

Ranking government debt has been downgraded in Greece by three major international institutions, including some neighboring countries of Ireland and Spain.

Agency, The Fitch has urged all governments to reduce debt levels, especially the British, who are not members of the “euro zone”, along with France and Spain.

Germany, long regarded as a trigger in the euro zone that has the discipline of their fiscal policies, public debt estimated at approximately 78 percent of GDP this year. While in France, which is the second largest country in the eurozone economy, has a public debt to a record 75.8 percent in the third quarter of 2009.

Greece said predicted state debt in the eurozone jumped to 120 percent of output in 2010.

With rising unemployment and weak economic growth is expected in 2010, officials can not rely on increasing tax revenues for much help in paying the debt, much foreign debt.

“The economic crisis is weighing on the sustainability of public finances and growth potential,” said the commission had warned the European Union as an economist is still open the possibility of “double dip” recession this year.

DUBAI – Dubai will soon establish Islamic banking academies. Academics Dubai, Dr. Hussain Hamed Hassan said the construction work is expected to start college next few months and targeted operations in 2011.

“This new institution will be supported by Islamic banks in the United Arab Emirates and the leadership of a leading Islamic financial institutions in this region,” Hassan said, as quoted zawya pages, Wednesday (6 / 1).

The institution will have a program S1, S2 and S3 in the field of Islamic finance. Hassan added the establishment of Islamic banking academies is because the number of academics and financial professionals minimal sharia in the country. Read the rest of this entry »