Look At The Six "New Authorities" Of Bank Indonesia To Overcome The Economic Impact Of COVID-19

JAKARTA - The government continues to seek ways to combat the corona virus pandemic or COVID-19 in Indonesia. Not only providing incentive stimulus for affected sectors, but issuing Government Regulation in Lieu of Law (Perppu) No 1/2020 concerning State Financial Policy and Financial System Stability.

Governor of Bank Indonesia (BI), Perry Warjiyo, said that as a joint anticipatory step to reduce the impact of COVID-19, a Perppu is needed. This is because there are policies that have not been regulated or have exceeded the authority of the existing laws.

From the Perppu, there are six new powers granted to BI. First, BI is allowed to finance the State Revenue and Expenditure Budget (APBN) deficit through the purchase of Government Securities (SUN) and State Sharia Securities (SBSN) on the primary market.

Before the Perppu was issued, the central bank was not allowed to finance the fiscal deficit which is the government's domain.

"This is normal and we have been like that. But now it is not normal. That COVID-19 requires a larger fiscal deficit. Therefore, not all of the markets can absorb the entire fiscal deficit," he said, in a video conference with journalists in Jakarta. , Wednesday, April 1.

However, Perry emphasized that BI's role in the primary market is not as a first lender but as a last lender. This means that BI can only enter the market when it turns out that the market cannot absorb the need for SUN / SBSN issuance, causing interest rates to be too high or irrational.

The regulations regarding the purchase of debt securities by BI are contained in the second part of the Perppu on the authority and implementation of policies by Bank Indonesia Article 16 paragraph (1) letter c which reads:

"Buying long-term Government Securities and / or Sharia Securities in the primary market to deal with financial system problems that endanger the national economy, including Government Securities and / or State Sharia Securities issued for a specific purpose, especially in the context of the 2019 Corona Virus Disease pandemic. (COVID-19) ".

"If it causes interest rates to be too high, this is where we can buy SBSN and others. We will guard that BI as the last resort in order to maintain macroeconomic stability, including inflation," said Perry.

Second, BI is also given the authority to conduct a bailout or provide bailout funds to systemic banks through the Deposit Insurance Corporation (LPS).

"This is anticipatory, it will not necessarily happen. For this reason, BI is allowed to buy LPS securities repos. So that LPS can perform its function," he said.

For information, previously BI could provide a Short Term Funding Facility (FPJP) and an Emergency Financing Facility (FPD). However, since the Bank Century bailout case, this option has been removed and the current scheme is through the LPS by purchasing LPS debt repo.

However, in the current pandemic condition, the government considers that there is a need for extraordinary efforts to anticipate potential deterioration in the financial sector.

Third, providing short-term liquidity loans or short-term liquidity financing based on sharia principles to systemic banks or banks other than systemic banks.

Fourth, providing special liquidity loans to systemic banks that experience liquidity difficulties and do not meet the requirements for providing short-term liquidity loans or short-term liquidity financing based on sharia principles that are guaranteed by the Government and given based on the Decision of the Financial System Stability Committee (KSSK).

Fifth, regulating the obligation to receive and use foreign exchange for residents, including provisions regarding the transfer, repatriation and conversion of foreign exchange in order to maintain macroeconomic and financial system stability.

"For example, it is the obligation for domestic exporters to ask us to convert their foreign exchange into rupiah, if necessary," he said.

Perry said, the provisions regarding the obligation to receive and use foreign exchange will be regulated through a Bank Indonesia Regulation.

Finally, Perry said, providing access to funding for corporations and the private sector by means of repo SUN or SBSN owned by corporations or privately through banks.