Indonesia wants to change its financial laws in a big way. This is how it could look

Indonesia is going to make big changes to how it regulates its financial sector as soon as this week. This comes after two years of failed attempts and resistance from the market.

The proposed law wants to give the central bank more power and make it official that it has the right to buy government bonds during times of crisis, as it has done in the past three years to help Southeast Asia's largest economy. By the end of 2022, the central bank would have bought debt papers worth 1.144 quadrillion rupiah, or about $73 billion. The bill also wants to make sure that rules keep up with how quickly financial technology and cryptocurrencies change.

After the finance commission approved the bill on December 8, parliament is expected to vote on it this week. Here are some things you should know about the changes to the financial sector:

Why is Indonesia changing its laws about money?

The rules that are already in place are hard to understand and often contradict each other. They are also out of date, given the recent boom in fintech and the central bank's plans for a digital rupiah.

The government hopes that the changes will make the local capital markets stronger so that they can meet the needs of the economy.

It also fits with President Joko Widodo's goal of reforming laws to cut down on red tape and make rules easier to understand, especially so that financial authorities can respond to crises more quickly.

What will change with the central bank?

If the law is passed, it will give Bank Indonesia the power to help the government by buying bonds when the president declares a crisis. This will make official what the central bank and the finance ministry said was a "one-time" measure during the pandemic.

As part of the proposal, lawmakers want the central bank to "participate in maintaining financial system stability in order to support sustainable economic growth." They also want the central bank to maintain payment system stability on top of its current job of keeping the rupiah and prices stable.

Analysts said that making job creation and economic growth explicit parts of Bank Indonesia's mission would put its independence at risk. So, the idea was taken out of the latest bill.

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