OJK’s new policy package strikes balance between growth and stability

OJK - JAKARTA. The Indonesian economy expanded by 5.27 percent year-on-year (yoy) during the second quarter of 2018 thanks to strong growth in consumption, Central Statistics Agency (BPS) announced recently, as reported by The Jakarta Post. The report continued that the latest figure was better compared to this year first quarter’s growth of 5.06 percent yoy and also 5.01 percent booked in the second quarter of 2017.

Currently, investment is the second-largest contributor to GDP growth. Exports, meanwhile, another national economic growth booster, grew 7.7 percent in the second quarter.

Indonesia’s export-oriented sectors still have a lot of untapped potential. In boosting these sectors, though, policymakers have to come up with proper currency-hedging strategies as well as policies strengthening local industrial sectors so as not to upset the stability of national foreign reserves.

Keeping this balance in mind, the Financial Services Authority (OJK) has just launched a new policy package that treads the fine line between accelerating economic growth through increasing export volume and the need to maintain stability of the national financial system. The new policy package was announced in mid-August.

The above-mentioned missions are also included in the OJK’s work program, aligned with the body’s functions to contribute to the national economy while maintaining the nation’s monetary stability.

In a press release issued in mid-August, the OJK stated that while formulating a new policy package, the body had coordinated closely with the Indonesian government as well as Bank Indonesia as part of their ongoing policy harmonization effort.

All things considered, the OJK has formulated the following new policy package to boost national export volume and growth of foreign exchange-producing industrial sectors:

1.     Providing incentives to financial service firms that channel loans to export-oriented industrial sectors, import substitutionproducingindustrial sectors as well as the tourism sector. These incentives include prudential regulations like core capital provision and asset quality risk protection.
2.     Revitalizing the role of the Indonesian Export Financing Institution, shifting the institution’s focus toward financing export-oriented industrial sectors, while boosting the institution’s role as a hedging instrument provider for export transactions and reassurance provider for export-related insurance schemes.
3.     Facilitating the capital market to finance the development of the 10 strategic national tourism sites outside Bali.
4.     Facilitating the provision of people’s business credits to finance the development of small-to-medium enterprises working in tourism, in cooperation with the Office of the Coordinating Economic Minister.

To boost national economic growth in sectors outside export-oriented industrial sectors, meanwhile, the OJK has launched the following new policy package:

1.     Adjusting the banking sector’s prudential procedures, such as risk-weighted assets to finance the housing sector. This policy also comprises erasing land management credit provision for residential complex developers, as well as unburdening them from the obligation to conduct collateral valuation to decrease their loan loss provisions.
2.     Stimulating the growth of financial technology startup companies, including equity crowdfunding platforms, considering these platforms’ significant role in providing access for small-to-medium enterprises — which contribute a great deal to national GDP — to get bigger capital injection, while still emphasizing consumer protection principles.
3.     Facilitating the capital market in maximizing its role in developing various instruments such as asset securitization, regional and green bonds, sharia-based financial instruments, hedging instruments as well as blended financial instruments. The OJK will also expand its domestic investor domains by strengthening the role of regional stock exchange companies.
4.     Mandating financing institutions to channel a certain portion of their funds to the productive industrial sectors.

     

“With this policy package, we aim at boosting the productive sector’s access to loans and capital injection, thereby increasing the sector’s multiplier effect on the real sector’s growth as well as labor absorption, all the while boosting the sector’s export volume,” OJK board of commissioners chairman Wimboh Santoso said.

“The policy [strives to achieve all these objectives] not only through procedure harmonization but also by boosting synergy among related ministries and institutions, such as microcredit banks, small-to-medium enterprises [SMEs] managed by the village administrations as well as the people’s business credits,” Wimboh added.

The OJK emphasized in its press release that currently, policymakers are still able to maintain national macroeconomic indicators at manageable levels, keeping the stability of the financial services sector as well as the liquidity of the financial market intact.

The OJK also announced that currently, policymakers have been able to maintain the national financial services sector’s crisis management protocol at a normal level, with the sector’s capital injection, liquidity and risk levels still maintained properly.