In an effort to regain public trust after the Indonesia's
banking crisis in 1998, the Indonesian government provided a
blanket guarantee over all of a bank's obligations to its
depositors. Regulations on the blanket guarantee were provided
under Presidential Decree 26 (1998) on Guarantee of Commercial
Banks Obligations, which was further amended on February 27
2004 by Presidential Decree 17 (2004).
This decree has rebuilt public trust in the banking
industry, but the broadness of the government guarantee has
placed a burden on state finance and has created a moral hazard
for bankers and depositors. Bankers are not compelled to
perform prudent banking business, and depositors pay less
attention to a bank's condition. In addition, there is no
adequate legal certainty, which makes implementing such a broad
guarantee difficult. So the government plans to withdraw the
blanket guarantee gradually.
Consequently a replacement is needed for the government's
blanket guarantee to provide insurance on people's deposits.
This replacement will be the deposits insurance agency (DIA).
Other countries that have a reliable DIA in Asia are, among
others, the Philippines (since 1963), Korea (since 1996),
Taiwan (since 1985), and Japan (since 1971). DIAs have been
recognized in the US since 1933 and in Canada since 1966.
Indonesian Banking Law 7 (1992) has been amended to include
provisions on the DIA. The law now states that banks are
obliged to insure people's deposits; and, for this insurance, a
DIA must be established.
Since amending the Indonesian Banking Law, the government
has conducted intensive follow-up action together with the
Department of Finance, the Indonesian Bank Restructuring Agency
(IBRA), and Bank Indonesia as the monetary authority. A draft
DIA Law was submitted to the House of Representatives in late
2003 and was enacted as the Deposit Insurance Agency Law 24
(2004) on September 22 2004, which will only be effective by
September 22 2005.
Once it is established, the Agency, which must have a
starting capital of Rp4 trillion ($425 million) to Rp8
trillion, may impose administration sanctions upon banks that
violate the requirements to pay premiums and provide periodical
reports in the designated format. It can only provide a maximum
Rp100 million insurance undertaking on one customer's deposit
To cover the gap between the dissolution of the IBRA and the
enforcement of the new law, the government set up a Government
Guarantee Implementing Unit within the Department of Finance to
conduct deposit guarantees for ailing banks in situations such
as the recent crisis of Bank Dagang Bali and Bank Global