Monday, January 16, 2006

Central Bank to protect local employment

BI, the Central Bank, sets the new regulation that limits the number of foreign employees in foreign-owned lenders to provide jobs for local workers and encourage them to increases their credit to domestic firms (see this Jakarta Post link, non-permanent).

The limitation of the number of foreign employees is not new as Indonesian WTO-GATS specific commitments, on the general condition for banking sub-sector, states that:

1. With respect to the presence of natural persons no economic needs test will apply. A non Indonesian employe a
manager or as technical expert shall have at least two Indonesian under studies during his/her term.
2. In addition to the Horizontal Measures, temporary entry will be granted to technical expert(s)/advisor(s) of branch office of the foreign bank and joint venture bank for no longer than 3(three) months per person for any given year.

Apology for you who are not familiar with the terms, it is confusing indeed. It basically says that foreign employment is restricted in banking sector.

But I fail to understand the reasons given by the BI Governor, that is to help with the situation 12 millions Indonesian unemployment, let alone with the idea of to encourage the foreign bank increasing their credit to domestic firm. The unemployment figure is unlikely affected by this policy; and can anybody help me on the second?

I can understand if it is to facilitate technology and expertise transfer in banking industry --although it is a very problematic argument, too. Yet, those expertise transfer should be gained through competition, not protection. Beside, I do not see any point for those foreign bank to hire expats --you know they are expensive--; unless they find that Indonesian bankers are really incompetent.

Are they? OK suppose they are; then let them compete with their foreign counterpart to get those millions dollar salary. And do we really want our money being managed by incompetent persons-- even if they are our fellow countrymen?

Moreover, why bothers that the foreign banks lends less than the domestic one? Surely any bank has its own risk calculation. And if those foreign banks miss the boom of the expanding local economy by channeling less credit, it is their fault. Otherwise, it is the domestic banks that is doomed.

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