Indonesia is planning a huge overhaul of its financial laws. Here’s how it might look
- Southeast Asia’s largest economy is set to enact sweeping changes to the way it regulates its financial sector with a new reform law
- The law seeks to expand the central bank’s mandate and cement its authority, make the digital rupiah legal tender and prevent political interference
The proposed law seeks to expand the central bank’s mandate and cement its authority to buy government bonds during times of crisis, as it had done in the past three years to shore up Southeast Asia’s largest economy. By the end of 2022, the central bank would have bought 1,144 trillion rupiah (US$73 billion) in debt papers. The bill also seeks to bring regulations in step with the rapidly evolving fields of financial technology and cryptocurrency.
Parliament is expected to vote on the measure this week, after the bill was approved by the finance commission on December 8. Here’s what you should know about the financial sector reform:
Why is Indonesia reforming its financial laws?
Existing regulations are complicated, often overlapping if not contradictory. They’re also out of date, given the recent boom in fintech and the central bank’s plans for a digital rupiah.
The government expects the changes to help deepen the local capital markets to finance the requirements of the economy.
What changes are in store for the central bank?
If passed, the law will give Bank Indonesia the authority to come to the government’s aid through bond buying when the president declares a crisis, cementing its unprecedented move during the pandemic which the central bank and the finance ministry had described as a “one-off” measure.