FINANCIAL SYSTEM OF INDONESIA
History tells us that 1997 is a history that will never be forgotten by Southeast Asian countries, especially Indonesia, the financial crisis, or in Indonesia they call it the currency crisis, the economies of Southeast Asian countries in the Asian region, especially Indonesia. The peak of 1998 was when the Indonesian state was really at the peak of the financial crisis, where the situation at that time was very tragic and there was "chaos" everywhere. One of the causes of this financial crisis is the depreciation of the rupiah against the dollar and political instability in Indonesia. When the rupiah depreciated against the dollar, foreign debt became a burden, inflation soared out of control, and the dollar-rupee exchange also weighed on Indonesia's finances. Along with Indonesia's unstable political climate, many investors and entrepreneurs are reluctant to invest in Indonesia. And it was a period this country will always remember.
In fact, a common thread can be drawn from the crisis, namely the financial impact that occurred in Thailand in July 1997, affecting currency values, stock prices and other values, which spread to other countries, one of which is Indonesia. . Second, due to Indonesia's weak political and economic situation, high foreign debt and high inflation, a financial crisis was inevitable in Indonesia. Therefore a strong economy and also good financial stability prevented this country from the 2nd financial crisis.
The Importance of Maintaining Financial System Stability
The importance of maintaining financial system stability cannot be underestimated, the experience gained. in 1997-1998 demonstrated its importance. maintain financial stability. The definition of financial system stability itself is a stable financial system and a strong financial system that is resistant to various economic shocks, so that it can still act as an intermediary, pay properly in financial administration. system. financial system (Source: Bank Indonesia).
The financial system plays an important role in channeling funds to political parties that really need money. When the financial system is unstable, it also indirectly hinders the country's economic growth. When this happens, the result is an unprecedented financial crisis.
There are three main reasons for the importance of financial system stability. First, a stable financial system creates trust and a conducive environment for depositors and investors to invest their funds in financial institutions, including for the benefit of society, especially small customers. Second, a stable financial system encourages efficient financial intermediation, which in turn can encourage investment and economic growth. Third, financial system stability encourages market activity and increases the allocation of resources in the economy. (Source: Bank Indonesia Financial Stability Review June 2003). If this is not done, the consequence will be public distrust of the financial system, and even in a systemic crisis, the rescue costs will be very high.
Maintain Financial System Stability
In maintaining financial system stability, the central bank, in this case Bank Indonesia, has a very important role in maintaining financial system stability. One thing that needs to be done is to maintain rupiah stability and also implement monetary policy. In order to support the country's economy and realize a more developed and competitive financial system, monetary policy was emphasized to maintain stability in the value of the rupiah. The creation and implementation of effective and efficient monetary policy requires a financial system that is reliable, transparent, trustworthy and responsible, supported by a payment system that is smooth, fast, accurate and safe, as well as bank regulation and supervision based on prudential principles :
a) Formulation and implementation of monetary policy.
b) maintain smooth payment system.
c) Regulating and controlling the bank.
Regarding bank regulation and supervision taken over by the Financial Services Authority (OJK). The presence of OJK actually helps Bank Indonesia as the central bank to maintain the stability of the Indonesian financial system.
Such is the vision and mission of Bank Indonesia as the central bank; Bank Indonesia's vision is to become a reliable central bank institution both nationally and internationally by strengthening its strategic values and achieving low and stable inflation. Meanwhile, Bank Indonesia's own mission is to maintain stability in the value of the rupiah by maintaining monetary economic stability and developing financial system stability for long-term sustainable national development.
When setting inflation targeting monetary policy objectives, the inflation target is determined by the government. In setting the inflation target, the government coordinates with Bank Indonesia. Talking about inflation cannot be underestimated, because high inflation damages the financial system and also weakens economic productivity. Therefore, controlling inflation is not only the duty of the state, but also regional governments must play an important role in controlling inflation in their regions, therefore it is necessary to form a TPID (Regional Inflation Monitoring and Control Team). In addition, Bank Indonesia has the authority to conduct open market operations on the money market for both rupiah and foreign currencies, set discount rates, set minimum statutory reserves, and regulate credit or financing. In order to maintain and maintain stability in the value of the rupiah, Bank Indonesia implements monetary policies in a sustainable, consistent and transparent manner and is obliged to pay attention to the government's general economic policies in accordance with Article 10 of Law Number 3 of 200 concerning Amendments to Bank Indonesia Law No 23 of 1999.
In order to ensure the smooth operation of the payment system, an efficient, fast, accurate, smooth and secure payment system is one of the prerequisites for the successful achievement of monetary policy objectives. In this regard, Bank Indonesia has the authority to regulate and maintain the smooth operation of the payment system, grant authority to determine the use of payment instruments and regulate the operation of the payment system. Bank Indonesia as the central bank must carry out this task to maintain financial system stability, as well as Bank Indonesia as the lender of last resort must be able to make policies that can maintain the stability of the financial system itself. Apart from Bank Indonesia, the government itself must be able to maintain a conducive political climate in this country. Apart from making it easier for investors to enter the market or strengthening the investment climate, it also strengthens our economic position, as well as limiting imports and facilitating policies such as zero or tax incentives for exporters who wish to export their goods. tax for local exporters, so domestically, so we export as much as we can, indirectly our economy is getting stronger and remains stable.
To avoid a repeat of the 1997-1998 events, a strong economy is one of the conditions for avoiding a financial crisis, in addition to financial strength or financing, stability or maintenance of financial system stability. The country's political stability also plays a major role in maintaining financial system stability when viewed in 1998. In addition, the central bank, in this case Bank Indonesia, must also be able to maintain value stability. rupiah as monetary policy in controlling inflation and maintaining the smooth functioning of the payment system. If these things can be done continuously, then the stability of the government's financial system can be maintained. And the 1998 tragedy will not be repeated.
