THE amended Financial Sector Development and Strengthening Law (P2SK Law) were passed last month. It introduces a fundamental change. Parliament now has the authority to dismiss the Governor of Bank Indonesia and its deputy governors. It can also effectively “fire” commissioners of the Financial Services Authority (OJK) and the Indonesia Deposit Insurance Corporation (LPS), subject to the “subjective” judgment of members of the House of Representatives. As a result, BI, OJK, and LPS can no longer be regarded as truly independent institutions.

            Thus, when news broke that the amendment to the P2SK Law had been approved during a plenary session of Parliament, coinciding with rumors of a possible change in the leadership of Bank Indonesia, the market was not reading the text of the law. The market was reading the political context. And in finance, as we have repeatedly witnessed, perception is often as powerful as fact.