Bank Indonesia emphasises the Importance of Continuing Financial Sector Reforms to Maintain Macroeconomic Stability - Bank Sentral Republik Indonesia
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December 12, 2019

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No.21/43/DKom 

Bank Indonesia has emphasised the importance of continuing financial sector reforms in order to mitigate risk and overcome vulnerabilities. One initiative implemented by the Indonesian authorities is financial market deepening. To that end, Bank Indonesia considers the current pace of financial sector reforms fragmented amongst the different jurisdictions, which must be overcome through greater cooperation and information sharing with the authorities of other countries. Bank Indonesia has also stressed the need to strike an optimal balance between nurturing innovation in the financial sector and efforts to mitigate the risks that emerge. That was the key message of the G20 Finance Ministers and Central Bank Governors Meeting in Fukuoka, Japan, held on 6-9th June 2019, with an Indonesian delegation in attendance led by Finance Minister Sri Mulyani Indrawati and Deputy Governor Budi Waluyo.

The recent escalation of trade tensions has dominated the discussions at the meeting of financial and monetary authorities. Current global trade dynamics are harming the global economy and business/investor confidence is retreating. If unresolved, the trade tensions will lower global economic growth by 0.5%, increasing from the previous projection of just 0.2%. Furthermore, prevailing global economic dynamics require the support of a strong Global Financial Safety Net (GFSN). The G20 Finance Ministers and Central Bank Governors also discussed the priority issue of Japan’s Presidency, namely the implications of an ageing population on macroeconomic policy, risk mitigation efforts for global imbalances and efforts to increase infrastructure financing through the provision of quality infrastructure. Bank Indonesia took the opportunity to reiterate the importance of understanding the sources of imbalances and observing the imbalances from a more holistic perspective, not merely in terms of the current account deficit or trade balance, yet also through productive financing in the form of foreign direct investment (FDI). Bank Indonesia also highlighted the importance of a macroeconomic policy mix to overcome excessive imbalances.

The global economy showed early inductions of improvement in the first three months of 2019, with the gains expected to endure into 2020, as projected in April 2019. Nevertheless, the positive indications remain overshadowed by various risk factors that could trigger a slowdown, including any furtherance of the trade tensions, a lack of clarity on the way forward of the Brexit, and increasing financial sector vulnerabilities amidst low interest rates. Consequently, G20 members were urged not to become complacent regarding the positive achievements so far, yet continue to mitigate the risks and be prepared to implement the necessary policies. In addition, supporting global economic growth has been proven more effective through joint action to enhance the international coordination framework.

Jakarta, 10th June 2019
COMMUNICATION DEPARTMENT

 

Onny Widjanarko
Executive Director

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