Interview: Muliaman D Hadad
Of the markets OJK is responsible for, which have the greatest opportunities for development?
MULIAMAN D HADAD: With a growing population, a rising middle class and increased financial literacy, the demand for more advanced financial services keeps growing, particularly in the insurance sector. Therefore, an increase in the variety and sophistication of insurance products to protect properties such as vehicles and houses is needed to meet the growing demand.
Additionally, due to a slow but steady increase in financial literacy, more people across Indonesia are looking for alternative means to invest, beyond simply keeping money deposited in banks.
What are the major challenges facing the financial sector here in Indonesia?
HADAD: There are three major challenges for the financial sector in Indonesia. The first is to provide access and enhance general understanding within the Indonesian population. In an environment with low penetration rates, the government and the private sector need to make sure that the financial sector is able to continue to expand. This is particularly true for the lower-income segments of the population, which includes those living in rural areas, small islands and remote regions outside Java. Increasing knowledge is a significant challenge for the financial sector in Indonesia, and one that the new government is fully aware of and committed to tackling as part of their poverty alleviation plan. By addressing this obstacle, we will create a more participative population, which may help to reduce the poverty levels in the country and continue expanding the middle class.
The second challenge is to create more sophisticated financial products and services. The financial sector should respond by creating a greater variety of options, and this is where the private sector must be innovative and creative. However, the government also has a major role to play in this process, and it is actively trying to establish the policies, regulations and infrastructure that will encourage confidence and boost the access of the Indonesian population with regards to the financial market.
The third challenge is to broaden the role of the financial sector to help develop the country’s infrastructure base. This challenge is crucial and the current administration fully recognises its importance. Although banks serve as good sources of financing for such developments, they tend not to go for long-term projects, which are what is needed in this case. It is important that the financial sector can provide long-term backing to help address Indonesia’s pressing need for infrastructural development.
To what extent is Indonesia’s financial sector ready to take full advantage of ASEAN integration?
HADAD: ASEAN integration is neither an end goal nor an ultimate target; the final objective is to improve the welfare of the people. If integration ceases creating reciprocal benefits, it will no longer be the strategy the Indonesian government pursues.
Consequently, integration should be based on two principles. The first is reciprocity, which means to have a system that is mutually beneficial for all member countries. The second principle is to reduce the hurdles to expanding the presence of Indonesian companies within the whole region and in all sectors. All countries and companies ought to have an equal playing field, with the same advantages and benefits for all players in the regional market.
Indonesia and other ASEAN states are ready for further integration, with the next step being the planned ASEAN Economic Community, which ASEAN leaders plan to start implementing in 2015. It has been a long process of coordination, and significant work has been done to prepare our country to compete economically among ASEAN states. We are confident that single market integration will bring our level of financial expertise to a high level, and as a result bring numerous benefits to the Indonesian people.
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