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1 June 2010

Indonesia drafts regulation to thwart new crisis

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Indonesian Finance Ministry with the central bank are preparing a new regulation-in-lieu-of-law to protect Indonesia from a threat of crisis amid the Euro debt crisis, Finance Minister Agus Martowardojo was quoted as telling the Jakarta Post.

The regulation will be alike to the already-proposed bill on the financial system safety net (JPSK), the minister said Tuesday after a plenary session on the 2011 state budget at the House of Representatives.

In 2008 the government saved Bank Century (now Bank Mutiara) on fear it might trigger a crisis in the banking sector using the regulation-in-lieu-of-law on JPSK. In 2009 the government proposed the regulation to become a law but it was not yet endorsed by the House.

Agus said the government and Bank Indonesia (BI) had intensive communications over the Euro debt crisis and its impact to Indonesia. "We have met twice with BI. And we have agreed to renew the memorandum of understanding (MOU over troubled banks) so in case of a crisis there will be regulations of who will be doing what," he said.

The MOU will include the Finance Ministry, BI and the Deposit Insurance Corporation as institutions responsible to prevent a crisis, he said. "If the Financial Services Authority (OJK) is established, it will also be included," he added.

BI and the Finance Ministry, represented by the Capital Market and Financial Institutions Supervisory Agency, are finalizing the OJK bill to be proposed to the House. OJK will act as a supervisor to banks and non-bank financial institutions.

"If the MOU isn't ready yet, we also propose a regulation-in-lieu-of-law, which contents are similar with JPSK (bill)," said Agus.

He also explained the government kept communicating with the House to endorse the JPSK bill.

Agus, previously president director of Indonesia's largest Bank Mandiri, said currently Indonesia banks were in healthy conditions. "What we are afraid of is market perception (amid the Euro debt crisis)," he said.

Analysts said investors might drive away from emerging markets because of the Euro debt crisis, which had seen the credit ratings of Spain, Portugal and Greece downgraded.


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