V

ice President Boediono said on Wednesday that formulating homegrown solutions was crucial in averting as well as tackling financial crises that could strike at any time.

Global forums, he said, suggested various mechanisms to coordinate macro-policies. However, he noted that these suggestions remained on paper and had yet to be successfully implemented globally or in economic regions, such as ASEAN.

“Such coordination is crucial. Yet, because such coordination remains absent, we must be prepared to anticipate whatever situation may arise,” he said during a celebration to mark the seventh anniversary of the Deposit Insurance Agency (LPS) on Wednesday.

Boediono added that, as part of fortifying the country against the possibility of a financial crisis, the financial sector must act with prudence when conducting financial transactions.

“Criticisms about acting timidly in the fiscal and monetary sector are acceptable when normal conditions exist. However, in a time of uncertainty on when or how large a crisis may strike, adopting prudence is our best anticipatory weapon,” he said, reminiscing on the Bank Century bailout in 2008, which led to a prolonged legitimacy dispute between the government and the House of Representatives.

The bailout was executed during Boediono’s term as central bank governor, using LPS funds amounting to Rp 6.7 trillion (US$699 million).

Boediono urged the finalization of a “national crisis protocol” to ensure that all relevant institutions could work in unison in the event of a crisis.

“That’s why I strongly support the passing of the financial safety net bill,” he said, adding that if passed into law, the bill would provide players in the financial sector with a basis for their decisions.

He added that LPS was another critical “fort” against a possible crisis, although in normal situations the agency played a role in maintaining the level of confidence in the financial sector as well as protecting consumer rights.

“The critical role LPS plays during a crisis is to reduce the risk of contagion, which would cause confidence to dissipate,” he said.

LPS executive director Mirza Adityaswara said on Wednesday that the agency would hold talks with the Finance Ministry and the House before the end of this year regarding the implementation of a new risk-based system for premiums.

Under the new system, each bank’s premiums will be classified by its risk, allowing a form of incentive for banks to improve their risk-management system.

“If the House approves the proposal, we will conduct a ‘trial’ for the new system next year [...] before it is fully implemented in 2015,” Mirza told reporters in Jakarta.

LPS will collaborate with the newly established Financial Services Authority as the country’s future banking supervisor to assess the ratings of each bank.

“Seventy percent [of the final rating score] will be determined from an LPS assessment, while 30 percent of the rating will be determined by the supervisor’s assessment,” Mirza said.

LPS, an independent corporation established in 2005 to protect bank savings as a safeguard against banking runs, provides deposit insurance up to Rp 2 billion per depositor. The deposits guaranteed by LPS are worth Rp 1,761 trillion ($183.7 billion), or around 58 percent of the total deposits in the country of Rp 3,000 trillion.