Indonesia Deposit Insurance Corporation

Overview

The banking crisis associated with the 1997 Asian Financial Crisis prompted the Government of Indonesia (GOI) to respond with a guarantee of all bank liabilities to help stem the flow of funds from the nation’s banks.  A limited life Agency, Indonesian Bank Reconstruction Agency (IBRA), was established to manage problem bank resolutions and the blanket guarantee.  IBRA was closed in February 2004 and the blanket guarantee function was transferred to a division within the Ministry of Finance UP3 (Unit Pelaksana Penjamin Pemerintah).

Subsequently, the GOI designed a financial safety net to manage potential financial crises and reassure depositors, including a limited deposit insurance scheme. The GOI is aware that the blanket guarantee poses a significant contingent liability, particularly since not all the problem banks have been adequately resolved. In order to remove the blanket guarantee and maintain depositor confidence, the GOI established the Indonesian Deposit Insurance Corporation (LPS), began operations in September 2005.

Programs

USAID provided support to IBRA and continued to support the MOF team focused on deposit insurance.  In November 2004, USAID provided $3.6 million through the Economic Growth Office to assist Indonesia to create a modern limited deposit insurance scheme. 

Achievements & Program Highlights

In August 2003 USAID advisors working with the Ministry of Finance begin drafting the LPS law.  In November 2003 the Deposit Insurance Law was delivered to the President for introduction to the Parliament.

Throughout 2004, USAID advisors continued to support the MOF’s efforts to pass the LPS law.  Through working with another AID project (GIAT), USAID advisors were able to provide support to Parliamentary Commission IX.  This Commission was responsible for the initial review and scheduling the law for approval.  In September 2004, the LPS law was approved by the Parliament and the LPS was scheduled to begin its operations in September 2005. 

From the passage of the law, USAID advisors have been working with the MOF team in several key areas preparing for LPS’ operations.  A few of the accomplishments are detailed below:

• Socialization of the LPS law to over 2000 rural banks.
• Socialization of the LPS law to the major commercial banks and foreign banks that represent over 80% of the banking market.
• Conducted Reporter workshop for 18 major news organizations providing hands on demonstrations on how to calculate insured deposits when a bank closes.
• Drafting of Regulations for Presidential approval for Syariah Banking, Initial Capital & Liquidity, Insurance and Resolution of banks.
• Training of LPS team members through seminars, attendance at international deposit insurance conferences and a long term assignment with the FDIC in Washington DC.
• Development of organizational structure, staffing requirements, position descriptions and other human resource requirements
• Production of accounting policies and manuals.
• Purchase of computer equipment to allow LPS to set up its initial system.
• And other areas of support required to establish and prepare for operations in September of 2005.

In 2006 the LPS closed three rural banks and payment to insured depositors began within two weeks. This is a vast improvement over the time frame previously required by UP 3, the department at Ministry of Finance that managed payment of insured deposits between IBRAs closing and the start of LPS.

Future Goals 

The goal of USAID support is to provide high-caliber technical assistance, to assist LPS in its establishment and operations which includes:

• Work closely LPS’s Board of Commissioners and CEO to implement policies and procedures required to operate;
• Draft implementation regulations, decrees and other operating policies and procedures
• Help coordinate working relationships and information sharing between LPS and the bank regulator Bank Indonesia;
• Assist in the recruitment, staffing and training of LPS employees
• Continued support in socialization of the LPS to banks and depositors through:
  o LPS Branding
  o LPS advertising campaign
  o Production of educational materials for depositors
  o Training of Bank Staff on Deposit Insurance Coverage
  o Working with Press to educate reporters and editors on the roles and responsibilities of the LPS
• Provide technical assistance in the design, procurement and implementation of IT systems that will allow LPS to monitor banks and manage the failure of banks in a manner that does not create addition reporting burdens for the banks.
• In the event of a bank failure, provide technical assistance to support LPS’s management of the bank resolution

 

 

All Economic Growth activities