REPUBLIKA.CO.ID, JAKARTA -- Indonesia received assistance fund worth US$500 million from the World Bank to support reforms and modernization of the policies related to the financial sector by focusing on financial stability.
"Global experience shows that deepening and diversification of the financial system is contributing to the creation of more jobs and reduction in poverty," World Bank Country Director for Indonesia Rodrigo Chaves stated in a written statement received here on Wednesday.
Chaves noted that Indonesia's financial system is dominated by banks, which has resulted in dismal growth in the non-banking financial sectors such as insurance, mutual funds, and pension funds as compared to the banking financial sector.
The inadequately developed micro-insurance in Indonesia actually has the potential to protect millions of middle-class families in the country, which continue to grow, Chaves added.
The World Bank's loan is also able to support the government's efforts to maintain stability in the financial system by improving the prevention, management, and resolution of the crisis.
Earlier, World Bank Managing Director Sri Mulyani remarked that the instability is part of the dynamics of the global economy and requires more effort to cure the effects of the financial crisis.
"Instability is part of our dynamic global economy. We know that the banking and capital markets crisis tend to arise periodically, and we know that the crisis does not recognize state boundaries, although policy makers have tried their best to anticipate, prevent, and mitigate," she noted in a written statement received here on Sunday, June 8.
Various stakeholders need to have a safety net in order to prevent the adverse effects that may occur by regulations applied at both the national and international levels, which must be addressed to overcome the systemic weaknesses in a crisis.
However, according to Sri Mulyani, it is easier said than done because often the financial policy collides with the political and economic reality.
"When I was the minister of finance in Indonesia, I experienced a "perfect storm." Located 10 thousand miles from the epicenter of the US crisis, our currency was devalued and our banking system became vulnerable," Mulyani remarked.
The conditions worsened due to the combination of conflicting domestic political priorities, which left few options on deciding whether to take short-term actions or fix the long-term problem, noted Mulyani.
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