Indonesia: Financial System Stability Assessment
International Monetary Fund
Download Document| Date Published | 2010 |
| Version | |
| Primary Author | Hervé Ferhani and Cheng Hoon Lim |
| Other Authors | |
| Theme | |
| Country | Indonesia |
Abstract
This Financial System Stability Assessment (FSSA) is based on the work of two joint IMF/World Bank Financial Sector Assessment Program (FSAP) missions to Jakarta during October 6–16, 2009 and February 24–March 10, 2010. The main findings are: A decisive and successful response, as well as a decade of sound policies and structural reform, helped Indonesia recover quickly from the 2008 global crisis. However, lingering concerns over weak enforcement of the rule of law, transparency, and governance issues, weigh on market perceptions. Addressing these weaknesses should be a priority. Political risk is currently less of a concern. The banking system is generally healthy. While banks are vulnerable to credit, interest rate, and liquidity risks, a high capital and earnings buffer has provided a cushion against macroeconomic volatility. The development of a viable capital market will help avoid an over-reliance on banking sector funding. Banking supervision and regulation have improved substantially, but gaps remain in dealing with problem banks and crisis management. Indonesia is planning a major change in the regulatory architecture by creating an integrated supervisory agency. This move reflects past thinking and could hamper the quality of supervision. Strengthened enforcement powers, independence, and legal protection for officials should be given priority. Bank Indonesia’s financial position should be reinforced.