ECONOMIC REPORT ON INDONESIA 2018
CHAPTER 5
Monetary policy in 2018 was focused on safeguarding economic stability with emphasis
on the exchange rate, amid mounting global uncertainty. Bank Indonesia made
preemptive, front-loading and ahead-of-the-curve increases in the policy rate in order
to maintain the attractiveness of domestic financial markets and keep the current account deficit within safe limits. Bank Indonesia backed up its monetary policy with exchange rate stabilization in line with fundamentals, a monetary operations strategy for
maintaining adequate levels of liquidity, strengthening of the Global Financial Safety Net
for external resilience, and coordination with the Government and relevant authorities.
Monetary Policy
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201870 |
Monetary policy focused in 2018 on safeguarding
economic stability with emphasis on the
exchange rate, amid growing uncertainty in the
global economy. The significant events of the first three quarters of 2018 – the increases in the US Federal Funds
Rate (FFR) and uncertainty on global financial markets – led to reduced inflows of foreign capital into emerging markets, including Indonesia. These developments were
challenging for monetary policy in countries with open
economies. At the same time as the current account
deficit was widening in response to solid domestic demand, foreign capital inflows were in decline. In turn, this had a negative impact on the balance of payments
(BoP) and exacerbated downward pressure on the rupiah.
This challenge was particularly evident in the second
and third quarters of 2018, necessitating an urgent
response because of the risk to economic and financial system stability and the risk of loss of economic growth
momentum.
Various monetary policy strategies were optimized to
safeguard economic stability. The aim of these strategies
was to maintain the attractiveness of domestic financial markets and keep the current account deficit within safe limits. The policy rate, the Bank Indonesia 7-Day
(Reverse) Repo Rate (BI7DRR), was raised a cumulative
175 basis points in preemptive, front-loading moves
ahead of the monetary policy curve, in order to maintain
the attractiveness of domestic financial markets. These measured actions were taken to control the rupiah
exchange rate and were also consistent with measures
to keep inflation in 2018 and 2019 within the 3.5±1% target range. Bank Indonesia also sought to maintain
exchange rate stability in line with fundamentals, without
interfering with market mechanisms. In addition, Bank
Indonesia enhanced its monetary policy strategy in
order to maintain adequate money market and banking
liquidity, which had tightened as a result of a decline
in foreign capital inflows. And it worked to strengthen the Global Financial Safety Net (GFSN) with the aim
of improving external sector resilience. Lastly, closer
coordination was forged between the Government and
other authorities to bolster the effectiveness of monetary policy in safeguarding economic stability.
The monetary policy responses and the policy mix
implemented by Bank Indonesia and the Government
have successfully further strengthened Indonesia’s
external resilience, kept the economy stable and
sustained the country’s economic growth momentum. In
the fourth quarter of 2018, a renewed increase in foreign
capital inflows occurred, driven by Indonesia’s attractive domestic financial assets, its prudently managed economic stability and the continued positive outlook for
the domestic economy. These policy responses had also
begun to successfully curb imports. In combination with
the increase in foreign capital inflows, these moves by Bank Indonesia and the Government helped to place the
rupiah on an appreciating trend in the fourth quarter of
2018. In parallel developments, inflation in 2018 remained subdued in line with the 3.5±1% inflation target and thus helped to underpin strong economic growth. Key to these
positive developments was the sound functioning of
monetary policy transmission and prudently managed
financial system stability.
5.1. Increasing the Policy Rate
In 2018, the direction of Indonesia’s monetary policy rate
was set within a framework of determining the optimum
monetary policy for a nation with an open economy.
Bank Indonesia determined the policy rate independently
while considering two further key elements: free
movement of foreign capital and continued flexibility in the exchange rate. In keeping with the framework, Bank
Indonesia sought, with its interest rate policy, to create
an adequate interest rate differential and also to bolster the attractiveness of investing foreign capital in domestic
financial market assets. However, the policy rate also remained consistent with measures to keep inflation on track. At the same time, exchange rate policy focused on
maintaining exchange rate stability at about the level of
fundamentals so that it could serve as an instrument for
mitigating external shocks to the economy.
The 2018 increases in the FFR posed a challenge
for monetary policy in emerging market countries,
including Indonesia, in managing economic stability.
These increases reduced the attractiveness of investing
foreign capital in emerging markets. Consequently,
Chapter 5Monetary Policy
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 71
inflows diminished and put pressure on emerging market currencies, including the rupiah. The widening of
Indonesia’s current account deficit over this period put strong pressure on the rupiah, as imports grew rapidly
to satisfy buoyant domestic demand. Furthermore, the
decline in exports consistent with the slowdown in world
economic growth put additional pressure on the current
account.
Bank Indonesia acted consistently within the policy
framework to introduce preemptive, front-loading
and ahead-of-the-curve increases in the BI7DRR. The
preemptive increases in the BI7DRR were linked to the
forward-looking, anticipatory response of Bank Indonesia
to the risk of increases in the FFR and uncertainty on
global financial markets. The front-loading response meant that the magnitude of the increase in the
Indonesian policy rate took into account the possible
extent of an increase in the FFR, so that the interest rate
differential would remain sufficiently large to maintain the attractiveness of domestic assets. Alongside this, the
ahead-of-the-curve response was related to the fact that
the magnitude of Indonesia’s policy rate increases would
also anticipate interest rate increases in other emerging
markets so that the domestic financial market would remain competitive.
Increases in the BI7DRR began in May 2018, and total
increases of 175 basis points lifted the rate to 6.0%. Bank Indonesia began with a 25 basis point increase in the
BI7DRR in May 2018 in response to the Federal Reserve’s
decision in March to raise the FFR and the onset of rising
uncertainty on global financial markets. Again in May, Bank Indonesia announced a further increase in the
BI7DRR of 25 basis points, bringing the rate to 4.75%. This increase was decided in a supplementary meeting
of the Board of Governors after considering the mounting pressure from external factors. In June 2018, Bank
Indonesia announced yet another increase in the BI7DRR,
this time by 50 basis points, in view of the escalating
global uncertainty that was being triggered by predictions
of more aggressive increases in the FFR, as well as rising
oil prices and tensions in US–China trade relations. In
the third quarter of 2018, Bank Indonesia again raised
the BI7DRR, but less aggressively in keeping with the
new lower level of pressure and global uncertainties
compared to the second quarter. By the beginning of
the fourth quarter, global uncertainties were fading, and
Bank Indonesia raised the BI7DDR by only 25 basis points.
Overall, the increases in the policy rate succeeded in
maintaining attractive levels in domestic interest rates,
reflected in the high interest rate differential (Chart 5.1).
5.2. Maintaining the Exchange Rate in Line with Fundamentals
Interest rate policy responses were also supported
by action to maintain exchange rate stability in line
with rupiah fundamentals, while retaining flexibility and promoting the operation of market mechanisms.
Bank Indonesia focused its exchange rate policy on
ensuring that economic adjustments made amid the
global uncertainty could move forward as intended and
support steady, continued economic growth. Exchange
rate stability in the midst of global uncertainty was
also important because it would minimize the risk of
excessive expectations of depreciation, and would also
stop pressure emerging on price stability and the financial system.
The policy strategy for stabilization of the rupiah
exchange rate was implemented in two parts. First, Bank
Indonesia optimized interventions on the forex market
and the government bonds market. Bank Indonesia
made selling interventions on the forex market to
minimize excessive fluctuation in the rupiah, and it bought government securities on the secondary market
to maintain rupiah liquidity, which had declined when
the forex market interventions took place. Second, Bank
Indonesia managed liquidity on the forex market and
successfully maintained adequate levels without placing
excessive pressure on the exchange rate.
Grafik 6.1. Suku Bunga Kebijakan dan Suku Bunga PUAB O/N
Interest Rate Policy - FFR Real Interest Rate Policy (rhs)
Percent Percent
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-5
0
5
10
15
20
25
Turkey IndonesiaThailand Malaysia Brazil India
Source: CEIC
Chart 5.1. Interest Rate Differential and Real Interest Rate
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201872 |
Bank Indonesia backed up its exchange rate policy
with action on financial market deepening in both the rupiah and forex markets. These included developing
hedging instruments such as overnight index swaps (OIS),
interest rate swaps (IRS) and domestic non-deliverable
forwards (DNDF). It also included policies to support the
effectiveness of hedging transactions, including removal of the requirement for cash collateral to be provided for
structured product transactions. The launch of DNDF
transactions on 1 November 2018 indirectly contributed to
more stable movement in the rupiah exchange rate, due
to the availability of this hedging facility inside Indonesia
and the growing numbers of market actors conducting
such transactions. The introduction of DNDF transactions
provided market actors with another alternative in
conducting transactions on the forex market; they had
relied more on spot transactions in the past. The broader
range of alternative instruments eased forex demand
on the spot market, which in turn contributed to more
efficient shaping of price expectations on the domestic forex market. This efficiency also resulted from the diminished role of the offshore non-deliverable forwards market, which had often been used as a benchmark for prices. These positive developments contributed to
stability in the rupiah.
Bank Indonesia also took measures to ensure adequate
liquidity on the domestic forex market and thus minimize
secondary risks to the rupiah exchange rate. It introduced
changes to the rules and transactions features of a
number of policy instruments. These changes included
the setting of a more efficient swap premium and the expansion of eligible underlying transactions for hedging
swaps with Bank Indonesia to include proof of transfer of
export proceeds. It also lowered the minimum amount
for hedging swap transactions with Bank Indonesia from
USD10 million to USD2 million. In regard to hedging
instruments, Bank Indonesia engaged in more extensive
communication with exporters and customers. It held
awareness-raising events and published planned auctions
of forex instruments and the outcomes on the Bank
Indonesia website in order to promote the development
of forex hedging transactions on the domestic forex
market.
5.3. Maintaining Adequate Liquidity
Bank Indonesia reinforced its monetary policy with an
operational strategy for maintaining adequate liquidity in
the money market and banking system. Bank Indonesia
decided to implement this policy because the decline
in foreign capital inflows would reduce liquidity in the money market and banking system. Action was needed
to forestall this possibility, which could have impacted
banking resilience particularly with regard to adequate
liquidity, given that credit growth was on an upward
trend. Anticipatory action was also necessary because
such developments may affect financial system stability.
Consistent with this direction in monetary policy
operations, Bank Indonesia employed a number of
strategies in the second and third quarters of 2018 to
ensure the availability of liquidity on the money and forex
markets during a time of mounting global pressure. First,
Bank Indonesia increased the frequency of auctions for
short-tenor government securities reverse repo (RR SBN)
transactions, covering the 1-week, 2-week, and 1-month
tenors, to support the restructuring of bank liquidity
profiles. Auctioning of the 1-week government securities reverse repo instrument was increased from twice a week
to three times per week beginning in April 2018, and then
followed by daily auctions starting in September 2018.
Flexibility was introduced to the 2-week and 1-month
tenor RR SBN to keep pace with the liquidity needs of
banks.
Bank Indonesia also introduced measures to optimize
the short-term government securities reverse repo
instruments in open market operations (OMO). Besides
maintaining adequate liquidity, a further purpose of this
strategy was to increase the use of government securities
as an open market operations instrument, consolidate
the debt securities market and improve financial market deepening. The government securities reverse repo was
optimized through a phased lengthening of tenors for this
instrument. Bank Indonesia began auctioning 6-month government securities reverse repo in early July 2018,
replacing the previous use of Bank Indonesia Certificates of Deposit. Bank Indonesia also reactivated auctions of
Bank Indonesia Certificates (SBIs) for the 9-month and 12-month tenors in July 2018 in an effort to stimulate foreign capital inflows. Following this, Bank Indonesia launched auctions of 9-month government securities reverse repo to replace 9-month SBIs at the end of September 2018. Following this strategy, Bank Indonesia
employed government securities reverse repo for most
of its operations, with tenors ranging from 1 week to 9 months.
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 73
In the fourth quarter of 2018, the focus of the monetary
operations strategy began to shift towards support for economic financing, but with an ongoing focus on safeguarding economic stability. This policy direction
was adopted because economic stability had returned to
a safe level, and this opened up space to implement the
strategy. During this period, Bank Indonesia strengthened
monetary operations by allowing greater access for the
banking system in order to expand liquidity. This strategy
was implemented by continuing the strengthening of
monetary operations undertaken in the preceding period,
including fine tune operations and auctioning of foreign exchange swaps.
The policy operational strategy for maintaining adequate
liquidity was bolstered by an increase in the average
statutory reserve portion. In 2018, the average statutory
reserve portion was increased twice, first to 2% from 1.5% in July 2018 and later to 3% in December 2018.1
The second policy was a continuation of the reforms
of the monetary policy operational framework for
increasing flexibility in liquidity management by banks, strengthening the bank intermediary function and
supporting measures for deepening of the financial market (Box 5.1 Implementation of the Average Statutory
Reserve Requirement).
The findings of a Bank Indonesia study demonstrate the considerable effectiveness of the average statutory reserve requirement in influencing flexibility in bank liquidity management. This was reflected in growing use by banks of the instrument and reduced volatility in
interbank rates. Banks made increased use of the average
rupiah statutory reserves following the increase in the
average statutory reserve portion in July 2018. Alongside
this, banks have also started to make use of the 2% average foreign currency statutory reserve requirement,
which came into effect on 1 October 2108. The number of banks using the average statutory reserve requirement
increased to 42 in the period from July to December 2018,
up from 28 banks in the period from October 2017 to end-
June 2018.
In tandem with the strategy for safeguarding liquidity,
Bank Indonesia also issued sharia financial instruments, in this case sharia certificates of deposit and Bank Indonesia sukuk (SukBI), or Islamic bonds. The sukuk
1 The increase in the average statutory reserve portion is set out in Board of Governors
Members Regulation No. 20/30/PADG/2018 dated 30 November 2018, which came into force on 1 December 2018.
instrument auctioned for the first time on 21 December 2018 were sukuk instruments with underlying assets in
the form of sharia-compliant securities held by Bank
Indonesia. SukBI will replace the use of the government
sharia securities (SBSN) reserve repo instrument. One
of the advantages of SukBI compared to reverse repo
instruments is that ownerships of SBSNs or government
sharia treasury notes, which comprise the underlying
assets for SukBI, are not transferred to banks. Another
advantage is that SukBI are not based on an akad
wa’d (sellback agreement) with Bank Indonesia and
can therefore be traded more flexibly. The more flexible features of the SukBI instrument enable sharia open market operations to be carried out in more
comprehensive range of tenors, thus supporting bank
liquidity management.2
Support for adequate banking liquidity was provided via
various monetary operations strategies. This was evident
from the monetary operations ratio indicator, in addition
to the adequate level of bank holdings of government
securities. On one hand is the contractionary monetary
operations position and its ratio to rupiah deposits,
which represents one indicator of bank liquidity. This
ratio decreased temporarily in the second and third
quarters of 2018 before resuming upward movement in
the fourth quarter of 2018.3 The contractionary monetary
operations position and its ratio to rupiah deposits,
following a decline to IDR392.4 trillion (8.5% of deposits) and IDR302.0 trillion (6.5% of deposits) at the end of the second and third quarters of 2018, climbed back to
IDR382.8 trillion (7.9% of deposits) in the fourth quarter of 2018. On the other hand, banks expanded their
holdings of government securities, which continued to
demonstrate resilience in banking liquidity. Accordingly,
the combined position of contractionary monetary
operations and bank holdings of government securities,
which also declined temporarily during the second
quarter (IDR853.6 trillion or 18.5% of deposits) and the third quarter (IDR923.0 trillion or 19.8% of deposits), managed to recover by the end of 2018, reaching IDR994.2 trillion or 20.6%. The end-2018 position of contractionary monetary operations plus bank holdings of government
securities was higher than the end-2017 position, which
stood at IDR962.8 trillion (21.2%) (Chart 5.2).
2 Bank Indonesia Sukuk (SukBI) is an instrument for monetary operations and the sharia
money market.
3 The contractionary monetary operations position indicates the total Bank Indonesia monetary operations of a contractionary nature conducted with the banking system.
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201874 |
Overall, the monetary policy strategy pursued amid global
uncertainties was able to keep the monetary base (M0)
position in alignment with the needs of the economy. In
2018, M0 growth came to 6.8%, below the 2017 growth recorded at 11.1% (Chart 5.3). This reduced growth in the monetary base in 2018 is explained by weaker
performance in net foreign assets and net domestic
assets. Average growth in net foreign assets came to
3.6% in 2018, below the 2017 growth of 14.7%. Similarly, average net domestic assets growth was 5.6% in 2018, down from the 2017 growth of 23.5% (Chart 5.4).
5.4. Strengthening the Global Financial Safety Net
Exchange rate policy was also supported by measures
to reinforce external resilience. Indonesia’s international
reserves position remained strong, although it was
recorded at USD120.7 billion at the end of 2018, below
the end-2017 position of USD130.2 billion. The end-2018 international reserves position was sufficient to pay for 6.7 months of imports or 6.5 months of imports and servicing of official external debt, well above the three months of imports that serves as the international
standard. The international reserves position offers strong assurance that Indonesia’s external sector is resilient
and that the country has the capacity to safeguard
macroeconomic and financial system stability.
Further measures by Bank Indonesia to reinforce external
resilience included strengthening of the GFSN through
financial cooperation with monetary authorities in
partner countries or with international institutions
through swap lines or credit lines. The financial cooperation is aimed at supporting international reserves
management in order to resolve difficulties in the BoP or to cover short-term liquidity needs. GFSN facilities can be
used for both crisis prevention and crisis resolution.
Indonesia has GFSN facilities on a bilateral, regional and
multilateral basis, and these were concluded by Bank
Indonesia and/or the Government. On a bilateral level,
Bank Indonesia has partnered with several other central
banks (Table 5.1). This cooperation takes the form of
a bilateral swap arrangement with the Bank of Japan
(BoJ) and a bilateral currency swap arrangement with
the People’s Bank of China (PBoC).4 In other cooperation,
4 The BoJ acts as the agent of the Ministry of Finance of Japan.
Grafik 6.5. Jumlah Bank yang Memanfaatkan GWM Averaging
Gross MO Position SBN Position
0
5
10
15
20
25
30
0
200
400
600
800
1,000
1,200
14.8%
20.2%21.2%
20.6%
2015I II III IV I II III IV I II III IV I II III IV
2016 2017 2018
PercentIDR trillion
Ratio (Contractionary MO + SBN)/IDR Deposit (rhs)
Source: Bank Indonesia
Chart 5.2. Contractionary Monetary Operation Position and Bank Holdings of Government Securities
Grafik 6.6. Pertumbuhan Komponen M0
Percent, yoy
M0
Commercial Banks DemandDeposits at BI
Currency in Circulation (CurrencyOutside Banks + Cash in Vaults)
-15
-10
-5
0
5
10
15
20
25
30
I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2018
Source: Bank Indonesia
Chart 5.3. Growth of Base Money Components
Grafik 6.7. Pertumbuhan Faktor yang memengaruhi M0
Percent, yoy
-30
-20
-10
0
10
20
30
40
50
60
I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2018
NFA
NDA
M0
Source: Bank Indonesia
Chart 5.4. Growth of Base Money and Its Affecting Factors
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 75
a local currency bilateral swap agreement has been
concluded with the Monetary Authority of Singapore
(MAS). In regional-level cooperation, GFSN facilities are
available under the ASEAN Swap Arrangement and Chiang
Mai Initiative Multilateralization (CMIM). The objective
of cooperation under the ASEAN Swap Arrangement and
CMIM is to provide short-term liquidity to ASEAN member
nations. At the multilateral level, the International
Monetary Fund also has facilities available in the form of
flexible credit lines, precautionary and liquidity lines and stand-by arrangements for all members who meet the
required criteria.
At the regional level, Bank Indonesia successfully
concluded agreements for expanded financial
cooperation during 2018. In October 2018, Bank Indonesia
strengthened its bilateral swap arrangement with the
BoJ to allow rupiah swap transactions to be conducted
against US dollars and/or Japanese yen. Prior to this,
only US dollars could be used. On 5 November 2018, Bank
Indonesia reached agreement on financial cooperation with MAS on a local currency bilateral swap agreement
and bilateral repo line. The cooperation with MAS is
aimed at bolstering monetary and financial stability, and the economic development of both nations. In other
developments, on 16 November 2018, Bank Indonesia expanded the scope of its bilateral currency swap
arrangement with PBoC by increasing the value of the
facility provided and extending the term of validity.
Table 5.1. Financial Cooperation in GFSN
Facility Type Objective ValueSigning of the
Agreement
Validity
PeriodDetails
Bilateral
BSA BI-BoJ
Bilateral swap arrangement between the
Rupiah and US dollar and / or the Japanese
Yen to overcome liquidity difficulties due to balance of payments problems or short-
term liquidity
BoJ’s commitment: USD22.76 billion
14 October 2018 3 years
BCSA BI-PBoC
Bilateral swap arrangement between the
Rupiah and the Chinese Yuan to solve
short-term liquidity difficulties, encourage bilateral trade and direct investment
between the two countries and other
objectives according to mutual agreement
Bank Indonesia and PBoC’s
commitment: USD30 billion, respectively
16 November 2018 3 years
The value increased from
the previous agreement
USD15 billion. This facility
is aimed to support
trade transaction and
investment between two
countries
LCBSA BI-MAS
Bilateral swap arrangement between the
Rupiah and the Singapore dollar to gain
access to liquidity in foreign currencies, if
needed, to maintain monetary and financial stability
Bank Indonesia and MAS’
commitment: USD7 billion,
respectively
5 November 2018 1 year
Regional
ASA
Regional swap arrangement between the
Rupiah and the US dollar / Japanese Yen
/ Euro to provide short-term liquidity for
ASEAN member countries experiencing
balance of payments problems
USD2 billion 17 November 2017 2 years
Extended several times
since first signing in November 2005
CMIM
Regional swap arrangement between the
Rupiah and the US dollar to overcome
balance of payments difficulties and short-term liquidity for ASEAN member countries
USD240 billion (the maximum
facility that can be withdrawn
by Indonesia is USD22.76 billion)
Bank Indonesia’s commitment:
USD9.1 dollar
17 July 2014
Not
limited,
evaluated
every 5
years
Amendment of agreement
for strengthening CMIM
facilities. The initial
agreement was signed in
March 2010
Multilateral
IMF
Provision of liquidity for member countries
that meet the criteria to resolve liquidity
difficulties
a. FCL: uncapped
b. PLL: up to 125% (period of 6 months) or 250% -500% quota (period of 1-2 years)
c. SBA: 145%-435% quota
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201876 |
Bank Indonesia also joined central banks of partner
countries to increase diversification in use of currencies in international trading transactions. The objective of
this cooperation is to promote the use of local currency
settlement in bilateral trading transactions under the
bilateral currency swap arrangement scheme, which
helps to maintain a stable rupiah exchange rate. Bank
Indonesia has now entered into bilateral currency swap
arrangement agreements with PBoC, Bank of Korea and
the Reserve Bank of Australia (Table 5.2). Another form
of cooperation is the local currency swap framework
(LCS), which encourages banks that are appointed
cross-currency dealers to facilitate local currency swap
transactions. The LCS framework is an agreement
between Bank Indonesia, Bank of Thailand and Bank
Negara Malaysia.
5.5. Building Closer Policy Coordination
Policy coordination between Bank Indonesia and the
Government was strengthened further to support
the effectiveness of monetary policy in safeguarding macroeconomic stability. Policy coordination was carried
out to support achievement of the inflation target and to keep the current account deficit within safe limits. Coordination for inflation control and reduction of the current account deficit is also implemented through the development of sharia economics and finance and the expansion of the role of micro, small and medium
enterprises (MSMEs).
On inflation control, Bank Indonesia worked steadily to build closer cooperation with central and regional
government. In January 2018, the Government and Bank
Indonesia agreed five strategic measures to keep inflation in 2018 within the 3.5±1% target range.5 In August 2018,
Bank Indonesia and the Government also reached
agreement on strategic actions to keep inflation within the 3.5±1% target range over 2018 and 2019 and to bring inflation lower to 3.0±1% in the medium term, or 2020 to 2021. These measures were put in place primarily to keep
volatile foods (VF) inflation at around 4% under a four-pillar strategy (known as the 4K strategy) of affordability of prices, availability of supplies, quick distribution and
effective communications.
Bank Indonesia also worked steadily to strengthen
coordination with the Government for control of
food prices in advance of the Idul Fitri holidays. This
coordination took place in the Central Inflation Control Team (TPIP) and Regional Inflation Control Teams (TPIDs). Control of food inflation was also supported by refinements in regulations relating to inflation control. In addition, coordination was also strengthened at the
regional government level, and consistent effort was made in 2018 to build stronger coordination between
central and regional governments via TPID national
coordinating meetings.
MSME suppliers of vital foods were also strengthened as
part of Bank Indonesia’s inflation control work, because their products contribute significantly to VF inflation. Bank Indonesia continued to develop clusters in various
regions for the five vital food commodities. This scheme
5 These were agreed in a coordinating meeting of heads of government agencies and line
ministries grouped within the TPIP in Jakarta on 22 January 2018. It requires parties to
control VF inflation, manage the amount and timing of AP price increases, strengthen coordination, strengthen data quality and strengthen Bank Indonesia’s policy mix to
maintain macroeconomic stability.
Table 5.2. Financial Cooperation in LCS framework
Facility Type Objective ValueSigning of the
Agreement
Validity
PeriodDetails
BCSA BI-BoK
Bilateral swap arrangement between the
Rupiah and the Korean won to increase
bilateral trade and strengthen financial cooperation for the economic development
of the two countries
Bank Indonesia and BoK’s
commitmet: KRW10.7 trillion,
respectively
6 March 2017 3 years
BCSA BI-RBA
Bilateral cooperation to increase bilateral
trade and other objectives in accordance with
agreement of both parties for the economic
development of the two countries
Bank Indonesia and RBA’s
commitment: AUD10 billion,
respectively
16 November 2018 3 years Effectively started on December 15, 2018
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 77
support provision of labor; and (iv) expanding the export
market for Indonesian industry.
Policy coordination also took place in relation to efforts to strengthen the role of tourism in improving the current
account. A central and regional government coordinating
meeting held on the topic of accelerating development of
priority tourist destinations put forward nine strategies
that represent common priorities. The nine strategies
are (i) adoption of a strategy for achieving tourism
performance targets through increased accessibility,
diversity of attractions, quality of amenities, support from
more robust marketing and capacity building for those
working in tourism; (ii) strengthening of tourism data
and information; (iii) improved access to financing for tourism businesses; (iv) increased availability of payment
system services, the digital economy and the associated
ecosystems; (v) stronger synergy between business
and government in promotion of tourism destinations;
(vi) improved access or connectivity by land and air;
(vii) integrated tourism attractions; (viii) upgrading of
amenities in tourist destinations; and (ix) improvements
in quality of HR and tourism businesses. 9
Bank Indonesia also promoted the development of sharia
economics to reinforce the structure of the economy. This
was carried out both through development of the halal
economic chain, involving the economic empowerment
of Islamic boarding schools (known as pesantren,
they also operate similarly to community centers),
and development of sharia-compliant businesses in a
number of sectors and for various commodities, including
tourism, food, fashion and MSMEs. Development of
sharia economics and finance and halal lifestyles are also promoted through public education and campaign
activities at local sharia economic festivals and the
internationally acclaimed Indonesia Sharia Economic
Festival (ISEF), both now held on a regular basis.
5.6. Transmission Functioning Well
In general, monetary policy transmission functioned well
and thus supported measures to safeguard economic
stability. Monetary policy transmission through the
interest rate channel was visible in movement in the
overnight interbank rate, which tracked the policy rate.
The cumulative 175 basis point increases in the policy
9 See Box 10.1 Tourism to Boost Foreign Exchange.
began in 2006, and is a comprehensive program designed to develop clusters from upstream to downstream.6 Bank
Indonesia’s cluster development scheme has delivered
positive benefits: increases in production, productivity and/or farmer incomes, and more stable prices at the
farmer level.7 In 2018, Bank Indonesia also launched a
new pilot project – a business model for downstream
development of food clusters.8 Clusters for vital food
commodities will be expanded further to support inflation control.
Bank Indonesia also worked closely with ministries and
relevant agencies at the central and regional government
levels. Examples of this include cooperation with the
Ministry of Agriculture, Ministry of Cooperatives and
Small and Medium Enterprises (SMEs), relevant regional
governments and regional sector offices, the banking system and the private sector. The cooperation includes
business skills capacity building for MSMEs and MSME
pilot projects that are focused on vital food commodities.
Bank Indonesia and the agencies it works with can
together develop MSMEs comprehensively – from
upstream to downstream. This cooperation promotes
more sustainable MSME growth and simultaneously
supports inflation control and export growth.
To support efforts for control of the current account deficit, Bank Indonesia progressively strengthened coordination with the Government. The various forms
of coordination included coordinating meetings with
the central and regional governments (Rakorpusda). A
coordinating meeting on developing export-oriented
industry by expanding market access and building
well-supported industrial zones was held, given the
need to strengthen current account performance on
the export side. Delegates at the meeting agreed four
strategic, consistent and synergetic directions. They are (i)
promoting development of export-oriented industries in
the regions; (ii) reducing costs of logistics within domestic
industry; (iii) building human resources (HR) capacity to
6 In the fourth quarter of 2018, 229 clusters were participating in Bank Indonesia’s cluster development scheme. They were distributed around Bank Indonesia’s 46 regional offices. The five vital food commodities are rice, red chili peppers, shallots, garlic and beef.
7 Study findings: Impact of Food Resilience Clusters on Measures for Control of Volatile Foods Inflation (Bank Indonesia, 2018).
8 Downstream development is the development of processing industries using VF
commodities/vital foodstuffs from agroindustry as raw materials for food processing. Contracts are put in place to guarantee prices for farmers and supply for industry or end-
consumers. Farmers are encouraged to produce (upstream activity) and this is followed
by processing of their crops to generate added value and improvements in marketing
(downstream activity).
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201878 |
rate over 2018 were accompanied by increases totaling
190 basis points in the overnight interbank rate, bringing it to 5.83%. The daily average spread between the policy rate and the overnight interbank rate came to 25 basis
points during 2018, below the 43 basis point spread in 2017 (Chart 5.5). The rise in interbank rates was also
accompanied by subdued volatility in the overnight
interbank rate, a trend supported by the adequate
liquidity levels.
Policy rate transmission to time deposit rates operated
more quickly, particularly after the increases in the BI7DRR. From the beginning of the year through April
2018, time deposit rates progressively declined in keeping
with the reductions in the policy rate since January 2016. The cumulative 200 basis point reductions in the policy
rate from January 2016 to April 2018 were followed by 213 basis points of decline in time deposit rates. During the May-to-October period of increases in the policy
rate, the BI7DRR, transmission of increases began to take
effect in time deposit rates in June. Time deposit rates climbed 102 basis points from June to December 2018,
reaching 6.88%. In analysis by tenor, time deposit rates were up in all tenors, although the 12-month tenor saw
only a modest rise. The strongest increase in deposit rates
took place in the 1-month tenor, which rose 119 basis points following the period of increases in the policy rate.
Deposit rates in the 3- and 6-month tenors also climbed incrementally with increases totaling 101 bps and 94 bps respectively by the end of 2018 (Chart 5.6).
Transmission of policy rate increases to lending rates was
not as pronounced as for transmission to time deposit
rates because, at that point in the financial cycle, credit growth and demand were still low, liquidity was adequate
and banks needed to expand credit. The less-than-ideal
transmission of policy rate increases was reflected in the gradual decline in lending rates, and also the uneven
distribution of increases in lending rates. In analysis
by credit category, rates for investment credit edged
upwards by 9 basis points, while downward movement persisted in working capital credit, with rates falling by
18 basis points, and in consumer credit, with rates falling
by 61 basis points. From the beginning of the series of increases in the policy rate to the end of 2018, the
weighted average lending rate fell 27 bps to 10.81% (Chart 5.7). The sustained decline in lending rates during a time
of rising deposit rates resulted in a narrowing of the bank
interest rate margin (Chart 5.8).
Grafik 6.8. Spread Suku Bunga Kebijakan dan Suku Bunga PUAB O/N
Spread of BI Rate & O/N Interbank Rate
Spread of BI-7DRR & O/NInterbank Rate
Average of BI Rate & O/NInterbank Rate Spread
Average of BI-7DRR& O/N Interbank RateSpread
Source: Bank Indonesia
0
50
100
150
200
250
I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2018
bps
Chart 5.5. Policy Rate and Overnight Interbank Money Market Spread
12 Months24 Months
1 Month
3 Months
Grafik 6.9. Suku Bunga Deposito Berdasarkan Tenor
I II III IV I II III IV I II III IV I II III IV2015 2016 2017 2018
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
Weighted Average of Deposit Rate6 Months
Source: Bank Indonesia
Percent
Chart 5.6. Time Deposits Rate by Tenor
Grafik 6.10. Pertumbuhan Kredit dan Suku Bunga Berdasarkan Jenis Penggunaan
I II III IV I II III IV I II III IV I II III IV
2015 2016 2017 2018
6
7
8
9
10
11
12
13
14
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
Weighted Averageof Credit Rate
InvestmentCredit Rate
ConsumptionCredit Rate
Credit Growth (rhs)
Working CapitalCredit Rate
Percent, yoyPercent
Source: Bank Indonesia
Chart 5.7. Credit Growth and Credit Rate
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 79
Continued decline in lending rates, coupled with strong
domestic demand, led to more rapid credit growth.
Acceleration of credit growth was recorded in working
capital credit and investment credit, but growth in
consumption credit was lower. This resulted, however,
in an overall increase in credit growth to 11.8% in 2018, up from 8.2% in 2017. In disaggregation by currency, rupiah lending grew 11.1% in 2018, increasing from 8.3% growth in 2017. At the same time, credit growth in foreign
currency reached 15.5% at the effective exchange rate (or 7.5% at a constant exchange rate), up in comparison to 8.2% growth in 2017.
In contrast to transmission in the bank credit channel,
policy rate transmission operated more strongly
in the asset price channel, as reflected in yields on government and corporate bonds. Yields on 10-year
government bonds climbed in 2018 to 8.0% from 6.3%. Yields on corporate bonds similarly rose, as indicated
by an increase in the weighted average interest rate on
corporate bonds. This increase in corporate bonds yields
slowed the pace of financing on the financial market in initial public offerings (IPOs), rights issues, corporate bonds, medium-term notes and certificates of deposit.10,11
In 2018, total financing raised on financial markets came to IDR209.3 trillion. Interest in financing on the corporate financial market began to fade in June 2018, one month after the change in direction in the policy rate. In analysis
10 IPOs are the initial public sale of shares in a company to investors, while rights issues offer shareholders the opportunity to buy new shares at a specified price and within a defined period.
11 Medium-term notes are debt securities with terms of five to ten years. Negotiable certificates of deposit are holdings in the form of time deposits, where certificates documenting the existence of the deposit are transferable or negotiable.
by components, the slowdown took place mostly in
rights issues and corporate bond issues. Following these
developments, financing on the financial market grew by 7.2% in 2018, having slowed from 17.3% growth in 2017.12
The various forms of monetary policy transmission
helped maintain adequate economic liquidity in line
with the needs of the economy, despite some decline
in comparison to 2018. M1 growth reached 4.8% at the end of 2018, down from 12.4% at the end of 2017. The downturn in M1 growth took place mainly in rupiah
demand deposits, while growth in cash currency
remained stable. Meanwhile, quasi-money registered
6.8% growth, just under the 6.9% recorded at the end of 2017. This lower rate of growth in quasi-money
is explained largely by contraction in rupiah and
foreign currency time deposits. In response to these
developments, M2 growth reached 6.3% at the end of 2018, below the 8.3% growth recorded at the end of 2017 (Chart 5.9). The slowdown in M2 growth is explained mainly by contraction in net foreign assets, though it is
offset by increased lending by banks.
12 See Chapter 7 for discussion of transmission in the bank credit and asset price channels.
Grafik 6.11. Kontribusi Komponen Kuasi
0
1
2
3
4
5
6
7
4
5
6
7
8
9
10
11
12
13
14
2015I II III IV I II III IV I II III IV I II III IV
2016 2017 2018
BI-7DRR
Weighted AverageCredit Rate
Weighted Average Deposit Rate
Source: Bank Indonesia
BI Rate
Spread of Credit - Time Deposit (rhs)
Percent Percent
Chart 5.8. Time Deposit and Credit Rate Spread
Grafik 6.15. Pertumbuhan Komponen M2
Quasi Money
M2
M1
2
4
6
0
8
10
12
14
16
18
Percent, yoy
20
I II III IV2015
I II III IV2016
I II III IV2017
I II III IV2018
Source: Bank Indonesia
Chart 5.9. Growth of M2 Components
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201880 |
Implementation of the Average Statutory Reserve
Requirement
Box 5.1.
Since 1 July 2017, Bank Indonesia has implemented an
average statutory reserves policy as part of its reformulation
of the operational framework for monetary policy.
Before implementation of this average statutory reserve
requirement, banks were required to meet their entire
statutory reserves obligation in full on a daily basis. The new
rule requires gives banks more flexibility in managing the minimum funds that they must retain at Bank Indonesia,
with adjustments depending on their liquidity conditions.
Most importantly, this new rule can reduce volatility on
the interbank money market so that monetary policy
transmission from the Bank Indonesia policy rate to
the policy operational target, in this case the interbank
overnight rate, is more effective and liquidity management is optimized. In the initial stage of the new average statutory
reserve, the policy applied only to rupiah primary statutory
reserves held by conventional banks, and only on 1.5% of deposits (the total primary statutory reserve requirement is
6.5% of deposits).
Subsequently in 2018, the average statutory reserves
provisions were amended several times. On 16 July 2018, Bank Indonesia increased to 2% from 1.5% the portion of deposits to which the average statutory reserves portion
could be applied. It also expanded the scope of the policy
to include sharia commercial banks and sharia divisions
of conventional banks; they may apply the averaging
policy to up to 2% of their full 5% statutory reserve requirement. Then, with effect from 1 October 2018, the expanded flexibility was extended to foreign currency statutory reserves. The amendment allowed conventional
commercial banks to apply the average statutory reserves
rule to foreign currency reserves – at up to 2% of their total 8% reserve requirement. In a subsequent response to challenging conditions in bank liquidity throughout
2018, the average rupiah statutory reserves portion for
conventional and sharia banks was raised again – to 3% from 2%. This policy represents one form of Bank Indonesia support for increasing flexibility and distribution in rupiah liquidity in the banking system.
Bank Indonesia’s average statutory reserve requirement
quickly and successfully improved efficiency in management of bank liquidity, as reflected in the reduction of idle money recorded in bank excess reserves.1 The
average statutory reserve requirement permits better
management of bank excess reserves, because banks
can use their excess reserves from an earlier point in the
maintenance period to remain in compliance with the
statutory reserve requirement. Within four months of
the launch of the average statutory reserve requirement
(July–October 2017), excess reserves, or idle money held by
banks, was reduced by 50%. Ideally, this idle money can be allocated to other income-earning instruments or loaned
out. Bank Indonesia worked steadily to bring about these
efficiency improvements, another of which was prescribing a zero interest rate for bank reserves held at Bank Indonesia
effective from 16 July 2018.2 The objective of this change
was to encourage banks to make optimum use of average
statutory reserves, which in turn would reduce idle money
in the banking system.
Banks steadily expanded their use of the average statutory
reserve requirement. Average use of this instrument reached
7.4% of the total statutory reserve requirement over the period from July to December 2018 (Chart 1). Daily average
use of the average statutory reserve requirement reached
IDR9.30 trillion at the end of 2018, approximately equal to the daily average volume on the overnight interbank market
in December 2018 of IDR9.79 trillion. At the same time, the
1 Excess reserves are the surplus of bank reserves held at Bank Indonesia.
2 In keeping with practice at the majority of central banks in other countries.
Grafik 2. Jumlah Bank yang Memanfaatkan GWM
Source: Bank Indonesia
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2
7 108 9 12 1 2 3 4 5 6 711 108 9 12112017 2018
0
2
4
6
8
10
12
0
2
4
6
8
10
12
Percent of Reserve RequirementAveraging Utilization
Percent of utilization IDR trillion
Average Statutory Reserve Requirement Utilization
Chart 1. Average Statutory Reserve Requirement Utilization
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 81
banking system made optimum use of the foreign currency
average statutory reserve requirement of 2% effective from 16 July 2018 and 3% from 1 December 2018. Overall, the number of banks using the average statutory reserve
requirement increased to an average of 42 per maintenance
period from July to December 2018, up from an average
of 28 banks per maintenance period in the period from
October 2017 to end-June 2018 (Chart 2).
The banking system took advantage of the average
statutory reserve requirement as a means of optimizing
liquidity. Early in the implementation period (an
observation period took place from August to November
2017), no specific pattern in use of the average statutory reserves was visible. However, a pattern of use according to the maintenance period did start to emerge as banks
developed greater understanding of the policy and adapted
accordingly. Some banks had excess balances at the
beginning of a maintenance period and then, near the end
of the maintenance period, took advantage of the leeway
offered by the average statutory reserve requirement.3 This
pattern was visible in the increasing day-to-day variation in
bank reserves balances over the span of several subsequent
observation periods (Chart 3). These findings indicate that average statutory reserves had come into regular use as
part of the liquidity management strategies of some banks.
Even so, the pattern of use of the new flexibility in statutory reserves was varied, influenced by liquidity conditions and a bank’s motivation for using it.
3 The excess bank reserves referred to here are funds minus the amount required for primary statutory reserves (including the average statutory reserves portion).
As envisaged in the initial design, the average statutory
reserve requirement and subsequent increases in the
percentage level successfully reduced volatility on the
interbank money market. This is evidenced by the negative
and significant parameter of the average statutory reserves portion in the interbank money market rate volatility
equation.4 In addition, estimates using average equations
also indicate that increases in the average statutory reserves
portion resulted in a lower average interbank money market
rate. This finding indicates that liquidity risk was reduced, and that this was coincident to the increase in the average
statutory reserves portion. In addition, the decline in the
average interbank money market rate may also be an
indication of improved pricing efficiency in interest rates, which may ultimately support financial market deepening.
Furthermore, the positive effect of implementing the average statutory reserve will improve policy
implementation and regulation of the average statutory
reserve requirement. An evaluation of the average statutory
reserve requirement since it was introduced in July 2017
indicates that it has contributed to efficiency in the banking system, and has optimized banking liquidity management
and thereby also financial market deepening. This is evident from the steady growth in use of the instrument. Indications
suggest that the average statutory reserve requirement has
reduced volatility on the interbank money market, in line
with the study findings.
4 Harahap, B. A., Bary, P., Kusuma, A. C. M., Tanjaya, E. and Nurunnisa, A. “Evaluasi Implementasi GWM rata-rata,” (Bank Indonesia, 2018).
Grafik 2. Jumlah Bank yang Memanfaatkan GWM
Source: Bank Indonesia
The average of banks using average statutory reserverequirement before July 2018 = 26 banks
After July 2018 = 42 banks
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2 MP 1
MP 2
MP 1
MP 2
MP 1
MP 2
7 108 9 12 1 2 3 4 5 6 711 108 9 12112017 2018
0
5
10
15
20
25
30
35
40
45
50
Banks
Chart 2. The Number of Banks Using Average Statutory Reserve Requirement
Grafik 3. Variasi Rerata Posisi Kelebihan Giro Bank Harian3
IDR trillion
Apr 18 - Jul 18 Jun 18 - Sep 18Aug - Nov17 Dec 17 - Mar 18
-10
-5
0
5
20
15
10
+1 +2 +3 -3 -2 -1C
ays after a n enan e er
Source: Bank Indonesia
Note: C is a constant that represents the average of excess reserves in overall days of the maintenanceperiod; +1 and +2 are day 1 and day 2 at the start of the maintenance period, respectively; -1 and-2 are day 1 and day 2 at the end of the maintenance period, respectively.
Chart 3. Average of Daily Excess Reserves in Maintenance Period
CHAPTER 5 | ECONOMIC REPORT ON INDONESIA 201882 |
Box 5.2.
Bank Indonesia Sukuk as an Instrument for Monetary Operations
and the Sharia Money Market
Bank Indonesia Sukuk (SukBI) form part of the basic
framework of the Bank Indonesia sharia monetary and
macroprudential policy mix. SukBI not only function as an
instrument for sharia monetary operations, but also as an
instrument on the sharia money market. Bank Indonesia
envisages that issues of SukBI will help to strengthen
the role of sharia financial institutions in its policy transmission and will help to expand sharia-compliant
economic financing, while maintaining stability in the national financial system.
Within the framework of the dual (sharia and
conventional) banking system, Bank Indonesia
has implemented the sharia monetary policy and
macroprudential mix as part of its policy mix. The policy
mix seeks to fulfill Bank Indonesia’s mandate to bring price stability and support financial system stability. Under the sharia monetary and macroprudential policy
mix, Bank Indonesia has issued a set of regulations
covering the average statutory reserve requirement,
financing-to-value (FTV), the macroprudential liquidity buffer (MLB) and the macroprudential intermediation ratio (RIM), all based on sharia principles. To support the
effectiveness of this policy mix, a deep sharia-compliant financial market is needed that is capable of facilitating liquidity management needs efficiently, based on sharia principles.
The SukBI instrument represents a further step in the
reform of the monetary policy operational framework and
is a vital part of the basic framework for Bank Indonesia’s
sharia monetary and macroprudential policy mix. Up to
2018, Bank Indonesia employed various sharia-compliant
monetary instruments, such as sharia Bank Indonesia
certificates (SBIS), SBIS repo, government sharia securities (SBSN) reverse repo and sharia term deposits.
SukBI have been issued to replace the SBSN reverse
repo instrument, which is not flexible enough because it cannot be traded. SBSN reverse repos can be negotiated
in repurchase agreements, but the transfer of ownership
of the SBSNs that form the underlying transaction make
this instrument less attractive for liquidity management
on the sharia money market. SukBI are issued in several
tenors to complement the tenors of the existing sharia
monetary instruments and thus support better liquidity
management in the sharia banking system.
In addition, SukBI can be used as collateral for repo
transactions in Bank Indonesia standing facilities, i.e.
provision of rupiah funds in a conventional standing
facility (lending facility) or provision of rupiah funds in
a sharia-compliant standing facility (financing facility). The launch of SukBI was marked by Bank Indonesia
Regulation No. 20/14/PBI/2018 concerning the Second
Amendment to Bank Indonesia Regulation No. 20/5/
PBI/2108 concerning Monetary Operations, which entered
into force on 17 December 2018.
It is envisaged that the issuing of SukBI will strengthen
the role of sharia financial institutions in Bank Indonesia policy transmission and economic financing, because SukBI also function as a sharia money market instrument.
The SukBI characteristics that support its function as a
sharia money market instrument are as follows:
• Term of at least 1 day and no more than 12
months;
• Issued in scripless form;
• May be placed as collateral with Bank Indonesia;
• May only be held by banks;
• On the primary market, only available for
purchase by sharia commercial banks and sharia
divisions of conventional banks;
• May be traded on the secondary market;
• May be purchased by conventional commercial
banks on the secondary market.
SukBI are securities issued by Bank Indonesia with
underlying assets in the form of sharia-compliant
securities held by Bank Indonesia. SukBI apply the al-
musharakah al-muntahiyah bi al-tamlik agreement. This
agreement is essentially a participation or partnership
(shirkah) contract with funds contributed by two or more
parties, followed by the purchase of an ownership portion
(hishah) by one party from the other party or parties at
the end of the contract or at maturity. The agreement
ECONOMIC REPORT ON INDONESIA 2018 | CHAPTER 5 | 83
demonstrates that in essence, SukBI holders have joint
ownership with Bank Indonesia of the sharia-compliant
securities that comprise the underlying assets. Bank
Indonesia pays out the income earned on the SukBI at
maturity or before that date in the event that the bank
holding the SukBI is unable to meet its SukBI repurchase
obligation.
For example (Figure 1), Bank Indonesia has 1,000 units
of sharia-compliant securities that form the underlying
assets for issuing SukBI. Bank Indonesia then issues SukBI
on the basis of funds contributed by the investor (in this
case, a sharia commercial bank or sharia division of a
conventional bank) for 999 units of the underlying asset, while retaining one unit as its own contribution of funds.
In this case, a joint contribution of funds (al-musharakah)
is concluded between Bank Indonesia and the investor
with an agreement on the profit-sharing ratio for the income earned from the underlying assets that will be
paid to the investor. At the maturity date, Bank Indonesia
will repurchase the 999-unit portion (hishah) from the investor (al-muntahiyah bi al-tamlik) and pay the income
earned on the SukBI to the investor.
The issuance of SukBI as part of the policy mix has
implications for a number of previous relevant
regulations. In the regulatory framework related to
Gambar 1. Skema Sukuk BI
SBSN Profit(tenor SukBI)
Investor fund participation (syirkah) shareExample: 999 units SukBI
Portion (hishah)
Mutahiyah BitTamlik
SukBI
Profit
Rate
Due date
Profit sharing (nisbah)*
Profit sharingof sukuk holders
BI fund participation (syirkah) shareMin. 1 unit of OMO smallest instrument
(IDR 1 million)
BI’s Sharia Securities(Underlying SukBI)
Example: 1000 units
*Nisbah is one of musyarakah akad principles, which is not necessarily the same with the fund participation ratio (syirkah)
MU
SY
AR
AK
AH
Figure 1. Bank Indonesia Sukuk Scheme
sharia macroprudential management, SukBI come within
the scope of securities eligible for use in complying
with the MLB and sharia-compliant MLB. Therefore,
a second amendment was made to Regulation of the
Board of Governors Members Number 20/11/PADG/2018
dated 31 May 2018 concerning Macroprudential Intermediation Ratios and Macroprudential Liquidity
Buffers for Conventional Commercial Banks, Sharia Commercial Banks and Sharia Divisions. The SukBI
instrument also satisfies the criteria for high-quality sharia-compliant securities that can be used as collateral
for short-term liquidity borrowing and sharia-compliant
short-term liquidity financing. For these reasons, Bank Indonesia update provisions relating to short-term
liquidity borrowing and sharia-compliant short-term
liquidity financing in Bank Indonesia Regulation No 20/16/PBI/2018 dated 17 December 2018 concerning Amendment to Bank Indonesia Regulation No. 19/3/PBI/2017 concerning Short-Term Liquidity Borrowing for
Conventional Commercial Banks, and Bank Indonesia
Regulation No. 20/17/PBI/2018 concerning Amendment to
Bank Indonesia Regulation No. 19/4/PBI/2017 concerning Sharia-Compliant Short-Term Liquidity Financing for
Sharia Commercial Banks.