New funding to help Indonesia build a deeper, more efficient and more resilient financial sector

WASHINGTON, June 10, 2021

The COVID-19 pandemic has caused a recession in Indonesia, with potentially lasting financial, fiscal and social implications. While the banking system is well capitalized and profitability is high, the lack of depth of Indonesia’s financial markets increases the country’s vulnerability to external shocks. The new funding is designed to help the country cope with financial sector vulnerabilities made worse by the pandemic. It does this by supporting measures such as extending financial services to previously underserved groups, reducing the costs of these services to individuals and businesses, and strengthening the capacity of the financial sector to withstand financial shocks. and non-financial.

“The COVID-19 epidemic has made structural reforms urgent to address vulnerabilities in the financial sector. The Indonesian government is committed to strengthening the financial sector given its critical role in sustaining Indonesia’s growth and reducing poverty, especially during the recovery phase of COVID-19. “ mentionned Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati.

The new development policy loan will support Indonesian financial sector reforms through three key approaches. First, it aims to increase the depth of the financial sector by expanding access to financial services – including by young people and women – by broadening the range of financial products and by encouraging long-term savings. These efforts would reduce Indonesia’s vulnerability to foreign portfolio outflows.

Second, it aims to improve the efficiency and reduce costs of the financial sector by strengthening the framework for insolvency and creditors rights, to protect consumers and personal data and to make payment systems more efficient and faster. using digital technology. The latter will support large-scale social assistance payments to vulnerable people during the crisis.

Third, it aims to strengthen the capacity of the financial sector to withstand shocks by strengthening the resolution framework to avoid disruption to financial activities in the event of bank failure, improving the effectiveness of financial sector supervision and implementing sustainable financing practices.

“This funding complements the government’s efforts to protect the financial sector and the economy in general from the impacts of the COVID-19 crisis. By making financial services more transparent, reliable and technology-driven, savings can be funneled into the most productive investments in a cheaper, faster and more secure way, thus opening the possibility for people to invest in their own. future and protect against unexpected shocks “, mentionned Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste.

World Bank support for financial sector reforms in Indonesia is an important element of the World Bank Group Country Partnership Framework for Indonesia, including the area of ​​engagement on building economic resilience and competitiveness contains a specific objective focused on deepening, improving the efficiency and strengthening the resilience of the financial sector. The new funding is also based on the GRID (Green, Resilient and Inclusive Development) principles of the World Bank Group.

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