Vice President Boediono said on Wednesday that formulating homegrown
solutions was crucial in averting as well as tackling financial crises that
could strike at any time.
Global forums, he said, suggested
various mechanisms to coordinate macro-policies. However, he noted that these
suggestions remained on paper and had yet to be successfully implemented
globally or in economic regions, such as ASEAN.
“Such coordination is crucial.
Yet, because such coordination remains absent, we must be prepared to
anticipate whatever situation may arise,” he said during a celebration to mark
the seventh anniversary of the Deposit Insurance Agency (LPS) on Wednesday.
Boediono added that, as part of
fortifying the country against the possibility of a financial crisis, the
financial sector must act with prudence when conducting financial transactions.
“Criticisms about acting timidly
in the fiscal and monetary sector are acceptable when normal conditions exist.
However, in a time of uncertainty on when or how large a crisis may strike,
adopting prudence is our best anticipatory weapon,” he said, reminiscing on the
Bank Century bailout in 2008, which led to a prolonged legitimacy dispute
between the government and the House of Representatives.
The bailout was executed during
Boediono’s term as central bank governor, using LPS funds amounting to Rp 6.7
trillion (US$699 million).
Boediono urged the finalization
of a “national crisis protocol” to ensure that all relevant institutions could
work in unison in the event of a crisis.
“That’s why I strongly support
the passing of the financial safety net bill,” he said, adding that if passed
into law, the bill would provide players in the financial sector with a basis
for their decisions.
He added that LPS was another
critical “fort” against a possible crisis, although in normal situations the
agency played a role in maintaining the level of confidence in the financial
sector as well as protecting consumer rights.
“The critical role LPS plays
during a crisis is to reduce the risk of contagion, which would cause
confidence to dissipate,” he said.
LPS executive director Mirza
Adityaswara said on Wednesday that the agency would hold talks with the Finance
Ministry and the House before the end of this year regarding the implementation
of a new risk-based system for premiums.
Under the new system, each bank’s
premiums will be classified by its risk, allowing a form of incentive for banks
to improve their risk-management system.
“If the House approves the
proposal, we will conduct a ‘trial’ for the new system next year [...] before
it is fully implemented in 2015,” Mirza told reporters in Jakarta.
LPS will collaborate with the
newly established Financial Services Authority as the country’s future banking
supervisor to assess the ratings of each bank.
“Seventy percent [of the final
rating score] will be determined from an LPS assessment, while 30 percent of
the rating will be determined by the supervisor’s assessment,” Mirza said.
LPS, an independent corporation
established in 2005 to protect bank savings as a safeguard against banking
runs, provides deposit insurance up to Rp 2 billion per depositor. The deposits
guaranteed by LPS are worth Rp 1,761 trillion ($183.7 billion), or around 58
percent of the total deposits in the country of Rp 3,000 trillion.
Mariel Grazella
Business & Investment Opportunities
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