The Government of Republic of Indonesia and the Central Bank of Indonesia have agreed on a new joint policy package on the financial sector. It is intended to increase coordination between fiscal and monetary authorities, and to intensify the reform of the banking industry, non-bank financial institutions and the capital markets within the next nine months. The policy is enacted through a joint decision letter (SKB) signed and issued by the ministries of economy, finance and state-owned enterprises (SOE or BUMN), together with the Bank of Indonesia, on July 5 2006. Based on the SKB, the programme will be executed in stages over nine months. The SKB's 14 stipulations, 34 programmes, and 55 action plans will be conducted by the Department of Finance, State Ministerial Office of BUMN and the Central Bank. The package consists of four groups of policy, as follows.
Non-bank finance institutions
- Improving the know-your-customer (KYC) principle. Programme: Anti-money-laundering (by August 2006).
- Reinforcement of non-bank financial institution capacity. Programme: Protection for consumers and investors (by September 2006).
- Reinforcement of insurance industry capacity. Programmes: Proper handling of unhealthy insurance business (by August 2006); Improving the quality and effectiveness of insurance industry supervision and insurance regulation (by March 2007); Improving protection for policyholders (by September 2006); Improving the quality of directors and commissioners in insurance companies (by December 2006); and Certain facilities for insurance taxation (by September 2006).
- Reinforcement of the pension fund industry. Programme: Expansion of pension fund business (by September 2006).
- Reinforcement of the funding institution industry. Programmes: Intensification of funding companies (by September 2006); Intensification of venture capital companies (by October 2006).
Stability of financial systems
The mechanism for funding sector coordination will be strengthened by drafting a new Financial Sector Safety Net Act (by December 2006). An expansion framework will be established for the financial sector by December 2006.
To consolidate the banking industry, the Credit Information Bureau will be integrated with the database of public service companies by December 2006), the deposit insurance agency will issue stipulations for banking settlements with systematic impact by September 2006, a Bank of Indonesia Regulation will provide an incentive for consolidating, merging and acquiring banks by simplifying the administration of their taxes (by October 2006 and continuing), and a dispute mediation institution will be set up by November 2006.
Problematic credits in BUMN banks will be settled by revising Government Regulation 14 of 2005 concerning the procedures for state receivables removal (by July 2006) and by revising the Minister of Finance Decree 31/07/2005 concerning the procedures for submitting research, ideas and determination for state receivables removal (by July 2006). BUMN banks will receive specific supervision by August 2006.
The policy aims to expand the capital markets. Its programmes will improve the markets' competitiveness and exchange efficiency by: merging the Jakarta Stock Exchanges and Surabaya Stock Exchanges and applying a remote trading facility (by October 2006 and continuing), improving supervision and management quality (by December 2006), increasing the use of information technology in capital markets (by October 2006 and continuing) and expanding the secondary market of debt instruments (by July 2006 and continuing).
The State Treasury investor base will also be expanded, and the accountability and supervision of the mutual fund industry will be improved, by August 2006.
In principle, the policy concerning the treatment of non-performing loans in BUMN banks will be realised by enacting a new regulation to supersede the Government Regulation 14/2005 and revising Minister of Finance Decree 31/07/2005. Regarding non-bank financial institutions, the Department of Finance will issue a policy that covers entry strategy, management or governance, and exit strategy. The policy will ease the permit process so that qualified local, or even foreign, non-bank financial institutions can establish their businesses faster in Indonesia. The Bank of Indonesia will also issue a regulation to grant further incentives to banks conducting mergers, consolidation and acquisitions up to 2008.