Strengthening Local Financial and Economic Development Coordination - Bank Sentral Republik Indonesia
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January 26, 2020

No. 18/32/Dkom

Bank Indonesia, the Ministry of Home Affairs and Ministry of Finance are avowedly committed to strengthening coordination and cooperation under the auspices of local economic and financial development. Such commitment is contained in the Memorandum of Understanding (MoU) between the Governor of Bank Indonesia, Agus D.W. Martowardojo, the Home Affairs Minister, Tjahjo Kumolo, and Finance Minister, Bambang P.S. Brodjonegoro signed on Friday, 22nd April 2016 in Jakarta.

The Memorandum of Understanding (MoU) concerning Local Financial and Economic Development Coordination is a follow-up to the first policy package released by the Government, Bank Indonesia and Financial Services Authority (OJK). The Memorandum of Understanding (MoU) is required as a foundation for the implementation of closer coordination and cooperation to stimulate local economic and financial development in line with the expanding role played by local economies nationally since decentralisation policy became prominent in 1999. The role of local areas has become increasingly strategic as the budget allocation transferred to such regions approaches the spending budgets of government ministries/institutions. Synergy between Bank Indonesia, the Ministry of Home Affairs and Ministry of Finance is expected to optimise the role played by Bank Indonesia representative offices in conjunction with local government and representative offices of the Ministry of Finance in all regions of the archipelago in order to accelerate economic development and strengthen local financial management.

The scope of cooperation contained within the Memorandum of Understanding (MoU) focuses on three strategic activities. Firstly, policy synchronisation and synergy to promote local economic and financial development through the accelerated implementation of structural reforms. Secondly, data and information exchange as well as analysis linked to local economic and financial development. Thirdly, establishment of the Local Economic and Financial Coordination Forum (KEKD). Through the KEKD Forum, various issues relating to local economic and financial development shall be discussed in order to facilitate policy recommendations and strategy direction in the interest of local economies. In addition, the KEKD Forum is expected to integrate with various other existing forums, activities and initiatives that relate to local economic and financial development.

The Memorandum of Understanding (MoU) controls the strategic role of each respective institution in terms of supporting local economic and financial development. Accordingly, Bank Indonesia is responsible for (i) providing data and information as well as analysis of national and local macroeconomic conditions; and (ii) providing strategic reviews, discussing strategic issues and formulating recommendations. The Ministry of Home Affairs is tasked with (i) developing and supervising local governments in terms of implementing government policy, while coordinating government affairs; and (ii) encouraging and facilitating local government policymaking. Meanwhile, the Ministry of Finance is charged with (i) providing data and information as well as analysis on fiscal policy; (ii) providing strategic analysis and reviews; and (iii) formulating policy recommendations concerning the effectiveness of fiscal policy.

Such cooperation is expected to provide optimal support for the planning and implementation of local economic and financial development. Solid policy coordination and synchronisation will help manifest increasingly sound and sustainable local fiscal management, while accelerating budget absorption for infrastructure projects. The existing constraints and impediments to budget absorption should also therefore be minimised. In addition, policy coordination and synchronisation between Bank Indonesia, the Ministry of Home Affairs and Ministry of Finance is expected to bolster efforts to improve the business climate and stimulate local investment, boost exports, accelerate the downstream industry program as well as underpin a secure, reliable and efficiency payment system that supports government and nongovernment financial transactions. Another important benefit of the cooperation is strengthening local economic planning and development through data and information exchange as well as rigorous and comprehensive regional economic analysis in the form of the Regional Economic and Financial Review (KEKR) conducted by Bank Indonesia as well as the Regional Fiscal Review (KFR) by the Ministry of Finance. Both reviews will become vital inputs in the planning of local economic development. The regional review conducted by Bank Indonesia will be complemented by the Regional Macroeconomic Model of Bank Indonesia (REMBI) and Growth Diagnostic analysis as well as comprehensive local economic surveys and a database.

Jakarta, 22nd April 2016
Communication Department

Tirta Segara
Executive Director

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