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Support the Minister of Finance Protect Indonesia from the Domino Effect of the Closure of Bank America


By : Lila Purnomo )*

In the midst of the prospects for the advancement of the Indonesian banking industry in the current digital era, there are a number of challenges and risks that are ready to lurk at any time that banking players need to be aware of, starting from leaks of customer data to the risk of cyber attacks.

Minister of Finance (Minister of Finance) Sri Mulyani Indrawati opened her voice about the collapse of Silicon Valley Bank (SVB) in the United States (US).

Sri Mulyani said the fall of SVB could be used as a case study for Indonesia. The state treasurer explained that in the last few weeks, the regional bank, which only has assets of US$ 200 billion, has caused shocks to other customers at large banks.

Meanwhile, the Chairperson of the Bank Indonesia Supervision Agency, Muhammad Edhie Purnawan, Ph.D, appealed to the public to fully trust the government, especially the Minister of Finance, in maintaining the stability of Indonesian banking. According to him, everyone must fully believe in the Minister of Finance’s statement, that there will not be a relatively large impact on Indonesia due to the incident at American banks. He considered that banking in Indonesia was relatively safe because the link between bank closures in America and Indonesia was not high.

Edhie added that judging from the estimates a few months ago, it was estimated that the world economy would be dark in 2023, but it looks better. Even though there has been some turmoil in banking in America the last few days. If you look at inflation and commodity prices, there is a decline in inflation because America, for one, carries out a tight monetary policy. So that what is happening globally and what should be a common concern, what Jay Powell is doing looks aggressive, causing central banks to become increasingly hawkish in controlling the inflation they will experience in 2022 and early 2023.

He further stressed that the impact of monetary tightening would not materialize before 2024. America has an inflation expectation of 2%, so it is still a long way to go. There is a potential for sudden stops and flights to quality to emerge , namely capital outflows and subsequent exchange rate depreciation.

If Indonesia builds strong trust then it will be safe. And if you look at several similar aspects such as stability and politics, in Edhie’s opinion it is still the same. The attacks on Ukraine have not stopped, but aid continues to flow in. So there are global geopolitical and global geoeconomic phenomena that are related to one another.

Banks in Indonesia are relatively safe because the relationship between the three bankruptcies in America and Indonesia is not high. What needs to be considered is the companies being financed, especially start-ups that are linked to big banks in Europe or America. Banks in Indonesia do not need to worry about that.

Sri Mulyani also said that the financial sector in Indonesia was still in a very good situation with the movement of foreign capital towards emerging markets . According to him, capital flows have entered Indonesia. We all have to fully believe in the Minister of Finance’s statement, that there will not be a relatively large impact on the incident at American banks.

On the other hand, the Dean of the Faculty of Economics and Business, University of Indonesia, Dr. Teguh Dartanto, Ph.D, also agreed that the explanation from the Ministry of Finance (Ministry of Finance) regarding Indonesia’s condition was quite safe. The financial sector in Indonesia is far more prudent than before because we have experienced a crisis. Where the Asian financial crisis in 1998 changed the Indonesian banking architecture, so that it was far more prudent in managing risk.

In addition, the experience of the financial crisis in 2008, where there was a bank collapse in America which had an impact on Indonesia and other countries. Indonesia also has experience during the pandemic. Indonesia has become one of the best economies which has performed quite well during the pandemic. This is of course inseparable from Sri Mulyani’s flexibility in maintaining national economic stability.

Teguh Dartanto stated that there were two influential factors, namely good policy and good luck. Indonesia can properly control issues related to finance and policies in the real sector are quite controlled. Interestingly, the coordination of the fiscal sector, monetary sector, and financial sector. This means that there is good coordination between the Ministry of Finance, Bank Indonesia, OJK and LPS.

Experience during the last pandemic can be a lesson, so that Indonesia is sufficiently prepared to face global conditions where there is a possibility that there will be a domino effect. And there is definitely a domino effect event, but not as big as we worry about. With fairly intense coordination from the four authorities, as well as experiences from crises and pandemics, we can mitigate these concerns.

He also really appreciates that the President, as the head of state, has given an alert warning, which means, we believe that Indonesia has resilience and is relatively unaffected, but we shouldn’t be overbearing either. On the other hand, the Minister of Finance with his data and analysis also shows that Indonesia is safe. The direct impact of events in America may not occur, but the possibility of an indirect impact is always there. This needs to be monitored constantly, and what the government has to do at this time is to remain vigilant.

*) The author is Pertiwi Institute Contributor

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