Regulation Update
Fighting Against Corona, Indonesia Prepares Economic & Financial Crisis Protocol

Wednesday, 01 April 2020

Fighting Against Corona, Indonesia Prepares Economic & Financial Crisis Protocol

Financial System Stability Committee (Komite Stabilitas Sistem Keuangan /KSSK) prepares the economic and financial recovery protocol from the risk of a crisis triggered by the corona virus pandemic (Covid-19).

KSSK is a crisis management task force consisting of government, Central Bank of Indonesia (Bank Indonesia /BI), the Financial Services Authority (OJK) and Indonesia Deposit Insurance Corporation (Lembaga Penjamin Simpanan/LPS). 

The Indonesian government considers the corona outbreak (Covid-19) to be more widespread and claimed thousands of casualties as the urgency of forcing health emergencies and carrying out large-scale social restrictions. This extraordinary policy must be taken by the Government to maintain the state stability, whether in health, social, economic, and security sectors. 

This condition forced the issuance of Government Regulation in Lieu of Law (Perppu) No. 1 of 2020 concerning State Financial Policy and Financial System Stability for pandemic management (COVID-19) and/or dealing with threats endangering the national economy and/or financial system stability.

In addition to pouring out a fiscal stimulus of IDR 405 trillion, the government is also prepares a number of scenarios to protect, maintain and enhance the economic capacity of business people from the real sector and financial sector in doing business as follows:  

  1. State Capital Injection (Penyertaan Modal Negara/PMN) through State-Owned Enterprises (Badan Usaha Milik Negara/BUMN),
  2. placement of government funds and / or investments either directly or through financial institutions, investment managers, and other designated institutions, as well as,
  3. underwriting with a scheme established by the government.

Read : Facing Critical Condition, Indonesia Poured Out IDR 405 Trillion to Address Covid-19

This beleid not only confirms the economic stimulus policy that the government should take, but also emphasizes the duties and authorities of each authority in the financial sector which is incorporated in the KSSK. 

Central Bank of Indonesia (BI)

To address the problem of financial system stability, BI according to its authority can take the following steps:  

  1. provide liquidity loans or short-term financing based on sharia principles to Systemic Banks or other than systemic banks,
  2. provide a Special Liquidity Loan (Pinjaman Likuiditas Khusus) to a Systemic Bank that has liquidity difficulties and is eligible to obtain the facility, even though it has previously received a short-term liquidity loan,
  3. purchase long term Government Bonds (Surat Utang Negara/SUN) or Government Sharia Bonds ( Surat Berharga Syariah Negara/SBSN) on the primary market, including SUN and SBSN that are issued specifically related to handling the pandemi,
  4. buy or repo Government Securities (Surat Berharga Negara/SBN) owned by the Deposit Insurance Corporation (LPS) if there is a problem in the solvency of Systemic Banks and banks other than systemic,
  5. regulate the obligation to receive and use foreign exchange for residents and provide access to funding to corporations by repo of SUN or SBSN owned by the corporation

Related to the intervention of the central bank (BI) in the government bond market, BI and the Minister of Finance will issue a joint regulation taking into account the conditions of the SUN and / or SBSN market, and their impact on inflation.

Perppu No. 1 of 2020 also affirms that all regulations related to BI that contradict the mandated authority of this Perppu are declared invalid.

Deposit Insurance Corporation (LPS) 

This beleid also confirms the authority of LPS to perform the following actions:  

  1. sales/repo of SBN owned to BI, 
  2. issuing bonds,
  3. providing loans to other parties and loans to the government.

The above steps can be taken if LPS is expected to experience liquidity difficulties to handle failed banks.

Besides, LPS is also authorized to decide whether it is necessary to save a bank other than the systemic that the bank declared failed or not. There are a number of things that the LPS will consider before deciding to do the rescue:

  1. economic conditions,
  2. the complexity of bank issues,
  3. effectiveness of handling bank problems, and
  4. not only consider the lowest cost estimates.

Another LPS authority is to create a deposit insurance policy for the customer group. In making this policy, LPS will consider the source of funds and the allocation of deposits and the guaranteed value. The provision will be regulated in Government Regulation ( Peraturan Pemerintah/PP). 

To support the LPS role, the government can organize a guarantee program outside the deposit insurance program as stipulated in the LPS Law.

Financial Services Authority (OJK) 

Meanwhile, the role of OJK in maintaining financial system stability is as follows:  

  1. Instructs financial services institution to do merging, consolidation, taking over, integration and conversion,
  2. provide exceptions to certain parties in fulfilling the disclosure in the capital market, and
  3. determine the technology used in holding General Meeting of Shareholders (Rapat Umum Pemegang Saham/RUPS) or other meetings.

In addition, OJK together with BI have the authority to assess the feasibility of Systemic Banks and Non-Systemic Banks to obtain short-term liquidity loan facilities. OJK and BI are also authorized to see the collateral adequacy ratio and the ability of the Bank to return the short-term liquidity loans.

Furthermore, BI will coordinate with OJK to conduct KSSK meeting in deciding to give special liquidity loan. The detailed provisions of this will be outlined in the joint rules between the Minister of Finance and BI.

Read : Indonesia Cuts Tarrif on Corporate Income Tax and Officially Applies Digital Tax


To support the handling of financial system stability problems, the government has the authority to provide loans to LPS when experiencing liquidity problems that endanger the economy, whose procedures will be regulated in a Minister of Finance Regulation (PMK).


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