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Risks, Resilience, and Reforms: Indonesia’s Financial System in 2019

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  • Adam Triggs
  • Febrio Kacaribu
  • Jiao Wang

Abstract

Indonesia has managed the complex challenges of the global economy well. The country's capital outflows were smaller in 2018 than during the Taper Tantrum in 2013; the rupiah had regained most of its lost ground by January 2019; the Indonesian stock market has outperformed its peers; growth is forecast to remain stable; inflation is low; unemployment remains below its five-year average; consumer and business confidence are robust; and the government budget has improved through a smaller deficit and cheaper borrowing costs. But significant risks remain. This paper assesses these risks and evaluates the adequacy of Indonesia's crisis management framework. It finds that the framework has serious deficiencies that could see liquidity challenges become systemic solvency crises. The framework effectively removes Bank Indonesia as the lender of last resort, risks politicising the process of crisis response, and could mean slower, less effective responses to crises. This paper explores how the framework could be improved and what reforms could be undertaken to deepen Indonesia's financial system, strengthen financial resilience, and boost the long-term growth outlook.

Suggested Citation

  • Adam Triggs & Febrio Kacaribu & Jiao Wang, 2019. "Risks, Resilience, and Reforms: Indonesia’s Financial System in 2019," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 55(1), pages 1-27, January.
    • Handle: RePEc:taf:bindes:v:55:y:2019:i:1:p:1-27
    DOI: 10.1080/00074918.2019.1592644
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    Citations

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    Cited by:

    1. Muhammad Afdi Nizar & Alfan Mansur, 2023. "Can the Indonesian banking industry benefit from a risk-based deposit insurance system?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 16(1), pages 177-196, January.
    2. Gupta, Krisna, 2019. "Modeling the Importance of Financial Liberalization to Indonesia's Economic Growth," Conference papers 333064, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Gupta, Krisna & Gretton, Paul & Patunru, Arianto, 2022. "Projecting the long run impact of an economic reform: the case of the Indonesian Omnibus Law and concurrent changes in trade policy," Conference papers 333472, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Xiaohui Chen & Yiqing He, 2022. "The Impact of Financial Resilience and Steady Growth on High-Quality Economic Development—Based on a Heterogeneous Intermediary Effect Analysis," Sustainability, MDPI, vol. 14(22), pages 1-19, November.
    5. Hao Dong & Tao Li, 2023. "Climate Economics and Finance: A Literature Review," Climate Economics and Finance, Anser Press, vol. 1(1), pages 29-45, November.

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