Precautionary Steps Taken to Maintain the Stability of Indonesian Financial Systems During COVID-19

The Novel Coronavirus Disease (“COVID-19”) pandemic has caused the country’s economic growth to slow down and the financial system to worsen. As an effort to maintain stability of the financial system and the national economy, the Government of Indonesia issued the Government Regulation in lieu of Law No. 1 of 2020 dated March 31, 2020 on the State Financial and the Financial System Stability Policies in Relation to the Handling of the Coronavirus Disease 2019 (COVID-19) Pandemic and/or to Overcome Threats that are Potentially Harmful to the National Economy and/or the Financial System Stability (“Perppu 1/2020”)

Perppu 1/2020 sets out policies which, among others, expand the authority of the relevant authorities in Indonesia that supervise and make policies to create the safety net for the financial and monetary conditions of the country, including, KSSK, BI, OJK, and LPS (all terms as defined below).

In this Newsflash, we focus on the financial system stability policy set out under Perppu 1/2020. Please visit our website for our Newsflash with regard to the tax policy set out under Perppu 1/2020 that we have discussed separately.


Initially, the Financial System Stability Committee (Komite Stabilitas Sistem Keuangan — “KSSK”) was formed under Law 9/2016 (defined below). KSSK consists of the Minister of Finance, the Governor of Bank Indonesia (“BI”), the Chairman of the Board of Commissioners of the Financial Services Authority (Otoritas Jasa Keuangan — “OJK”) and the Chairman of the Board of Commissioners of Indonesian Deposit Insurance Corporation (Lembaga Penjamin Simpanan — “LPS”), each of them represents their respective institutions to supervise, control and handle any Systemic Bank issues during both normal or financial crisis situations.

Under Perppu 1/2020, KSSK’s authority under Law No. 9 of 2016 on Prevention and Control of Financial System Crisis effective on April 15, 2016 (“Law 9/2016”) is expanded.  Under Perppu 1/2020, KSSK is now authorized to determine any scheme for incentives from the Government to tackle issues in financial institutions and issues with regard to the stability of the financial systems that threaten the national economy.

Article 27 of Perppu 1/2020 provides one interesting point. This provision grants legal immunity to KSSK’s members and its member institutions in performing the tasks prescribed in Perppu 1/2020 in good faith regardless of the amount of expenditure spent for the actions stipulated under Perppu 1/2020. In fact, under Perppu 1/2020 such expenditure will not be considered state’s loss. Therefore, no civil or criminal legal action may be conducted against KSSK’s decision. Any decision or action by KSSK will neither be considered an administrative court object of assessment. We note that this provision is being challenged at the Constitutional Court.

Perppu 1/2020 further grants each of KSSK’s member institutions various forms of authority intended to help maintain the stability of Indonesia’s financial system.


Perppu 1/2020 now grants BI several authorities that were previously revoked by Law 9/2016, as follows:

  • to provide a short term loan or funding to banks based on the sharia principles, both to Systemic or non-Systemic Banks based on BI and OJK’s assessment of banks’ soundness level and solvability — assessed by OJK, as well as banks’ collateral sufficiency and repayment ability — assessed by BI and OJK;
  • to provide a special emergency liquidity loan (pinjaman likuiditas khusus) to a Systemic Bank that does not meet the requirement for the foregoing short term loan and or funding with the approval from KSSK; and
  • to buy Government Bonds (Surat Utang Negara — “SUN”) and/or Government Sharia Bonds (Surat Berharga Syariah Negara SBSN”) from the primary market issued for particular purpose, specifically in relation to COVID-19 pandemic.

In addition to the foregoing, Perppu 1/2020  allows BI to do the following actions:

  • to purchase or repurchase (repo) of government securities owned by LPS to fund the cost of handling solvability issues for Systemic or non-Systemic Banks;
  • to regulate the obligation to receive and use foreign exchange for residents including provisions regarding the foreign exchange’s delivery, repatriation, and conversion in order to maintain macroeconomic and financial system stability; and
  • to provide funding to corporate or private sectors by repurchasing (repo) SUN or SBSN owned by corporate or private sector via banks.

Previously during the economic crisis in 2008, Bank Century’s bailout by BI cost the Government trillions of Rupiah. Learning from this, the Government had limited BI’s authority in giving incentives for banks. BI was only allowed to provide short term loans and or funding for Systemic Banks with a very high threshold. In addition to receiving such funding from BI, Systemic Banks must also provide high-quality collateral in the form of high-rating securities that are liquid or loan assets rated as Current. Further, BI used to only be allowed to purchase or conduct repo transactions of Bovernment bonds owned by LPS. Also, buying SUNs and SBSNs from the primary market was prohibited.


Perppu 1/2020 provides a more significant role to OJK. On top of holding the crucial role in deciding to provide short term loans or funding for banks, OJK is allowed to give written orders to financial institutions to perform mergers, consolidations, acquisitions, integrations, and/or conversions.

In respect of the capital markets, OJK is authorized to determine exemptions for certain parties from performing the disclosure obligation as a part of the effort in preventing and handling the financial crisis. Further, OJK may enact regulations concerning the use of information technology for holding General Meetings of Shareholders or other meetings that are mandatory for financial service business actors. This policy is also in line with policies issued by OJK on similar issues under OJK Circular Letter No. S-92/D.04/2020 dated March 18, 2020 on the Relaxation on the Reporting Obligations and the Implementation of General Meetings of Shareholders.


Perppu 1/2020 also expands LPS’ authority during the COVID-19 pandemic by allowing LPS to:

  • undertake joint preparation by conducting exchange information and/or conduct joint inspection with OJK against banks that are suspected to have solvability issues;
  • take the following actions:
    1. perform sell or conduct repo of Government bonds to BI,
    2. issue bonds,
    3. receive loans from another party, and/or
    4. receive loans from the Government,

in case LPS is considered to have liquidity issues in handling failing banks;

  • decide to save or not to save failing banks that are non-Systemic by considering, among others, the economic condition, availability or appetite of investors, banks’ complexity of issues and the efficacy in handling those issues, including but not limited to the consideration on the least cost test; and
  • regulate and implement deposit insurance policies for a group of customers based on the source of fund and/or implement such policy with regard to a particular savings portfolio with a predetermined insured amount, that will be regulated in a Government Regulation.



Perppu 1/2020 is valid as of March 31, 2020. However, in accordance with the Constitution and applicable laws, the House of Representatives (Dewan Perwakilan Rakyat or “DPR”) will decide on its next hearing whether to approve Perppu 1/2020 into a law. If the DPR decides to cancel Perppu 1/2020, then Perppu 1/2020 will immediately be cancelled.


April 24, 2020

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