Bank Indonesia sets up new unit to deepen financial market, support infrastructures

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Photo on 2016-04-08 at 09.12 #2

JAKARTA (TheInsiderStories) – Bank Indonesia(BI) sets up a new department with an aim to  develop sufficient development financing facilities as well as deepen financial market industry. The new department will work closely with the Financial Services Agency (OJK) and Finance Ministry (Fin Min).

The central bank aims to increase the proportion of foreign-exchange derivatives transaction to 50 percent of trades by 2024 from 40 percent in April and less than 30 percent last year.

Nanang Hendarsah, who was head assistant in the office of BI, will lead the unit as executive director, he was quoted by Bloomberg Newswire as saying. Hendarsah previously led a similar task force at the central bank, where he helped improve liquidity by ending a policy in which officials would call traders to reprimand them for selling the rupiah at levels deemed too weak.



“The aim is to accelerate a number of market-deepening initiatives so that Indonesia’s financial market can be more sustainable and resilient against any shocks,” he said by adding the department’s first task will be to coordinate a forum to help the government find ways to fund infrastructure through bond sales.

Recently, BI joined with Fin Min and OJK in setting up a Coordination Forum for Development Financing through Financial Markets Deepening (FK-PPK) to develop financial markets in an effort to make the economy more resilient to sudden capital outflows.

Development financing is urgently needed by Indonesia in order to achieve high, sustainable and inclusive economic growth. Furthermore, it is realized that active, liquid, inclusive, and efficient financial markets is one of the important factors needed to increase the availability of funds for development.

This can be achieved through financial markets, improving the effectiveness of fiscal and monetary policies implementation as well as providing risk management and liquidity tools for business practitioners.



Therefore, a common understanding and close coordination among the authorities and institutions is needed to accelerate the development and deepening of financial markets.

According to BI Governor Agus Martowardojo, the transaction volume in money market is around $5 billion a day–mostly in spot transaction–while in Thailand has reached $11 billion and Malaysia $15 billion. He continued, 72 percent financing for infrastructure projects comes from banking sectors.

Finance Minister Bambang Brodjonegoro added that PT Sarana Multi Infrastruktur (SMI), an infrastructure financing company owned by government, will facilitate the funding from pension funds, insurances and social security organizing body for employment. The government is targeting to finance infrastructure projects on 2016’s State Budget Rp313 trillion (US$23.72 billion).

According to him, the agency could raise funds around Rp40 trillion from the local financial institution firms.

Beside collecting funds from local financial institution, Chairman of OJK Muliaman Hadad added that to attract more liquidity to the market, the agency pushed the asset management companies to publish the Limited investment mutual funds with underlying infrastructure projects.

“We encourage investment managers to use infrastructure projects as underlying asset for limited mutual funds as an instrument for raising funds on the infrastructure projects,” he stated.

Previously, Chief Executive OJK for the Capital Market Supervisory Nurhaida, said among infrastructure projects that could use as underlying assets for the limited mutual funds are the 35,000 megawatts electricity generation projects.

According Nurhaida, new energy power projects, renewable and energy conservation need huge funding. Based on estimates of the Ministry of Energy and Resources minerals, the funds needed could reach up to Rp1.700 trillion.

Indonesia needs investment as much as Rp 5,519 trillion until 2019 to develop infrastructure projects by government and private company. (*)

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Source: The Insiderstories
Bank Indonesia sets up new unit to deepen financial market, support infrastructures

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