Indonesia's new financial crisis law carries risks

Subject

The new financial crisis management law.

Significance

On March 17, parliament approved the long-awaited 'Financial System Crisis Prevention and Mitigation' bill. For the first time, Indonesia has a law on financial crisis management that will provide the legal basis for regulatory authorities to respond better to future financial crises.

Impacts

• Government preparedness to manage a financial crisis will rise, albeit gradually.
• Political stalemate during a crisis, especially in parliament, would prevent effective and timely action by the president.
• The Deposit Insurance Corporation has limited capitalisation and may not be strong enough to manage more than two large troubled banks.