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Indonesia, one of the best performing emerging market economies, has a financial system that is underdeveloped for its size. In Indonesia, only 1 in 3 adults have accounts with banks or other formal financial institutions. Only 15 percent of firm investments are funded via the financial system with companies mainly reliant on their own funds. Indonesia can take its economic success to the next level via a deeper, more stable financial sector that intermediates funds to their most productive use.
AIPEG pursues an integrated approach to preserving stability in financial markets, developing the sector and improving supervision and regulation:
- Stability: Legal, regulatory, organisation and business practices that avoid market instability and disruption.
- Development: Deepening and diversifying the financial sector to meet economic growth and development needs.
- Supervision and regulation: Building a sound regulator and aspiring to meet global best practice and international rules.
In 2016, Indonesia passed a landmark law to prevent and respond to financial system crises. A financial crisis can quickly develop into an economic crisis, wiping out economic growth and plunging millions of households into poverty. Since the 1997-98 banking crisis, Indonesia had tried many times but failed to pass a law to better equip government officials to respond. Many actors contributed to the law finally passing in 2016 with the Indonesian Ministry of Finance in the lead. AIPEG introduced senior officials in the financial stability committee to international good practice in policy and regulation, real-life simulations of crisis prevention and also legislative drafting. The law expands the toolbox of government officials to deal with resolution of problem banks and identify significant banks for the financial system.