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IMF reminds Indonesia to balance financial deepening and stability
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The International Monetary Fund (IMF) logo. (Shutterstock/File)
F
inancial development in Indonesia has evolved at a relatively slow speed in comparison to peer countries. Although this provides opportunities for financial deepening, the International Monetary Fund (IMF) has been quick to remind Indonesia that deepening should be balanced with stability to avoid a crisis.
"There is evidence that too fast a pace of financial development leads to instability," IMF Mission Chief for Indonesia, Luis E. Breuer, said during the International Seminar on Financial Market Deepening 2016: The Way Forward for Indonesia in Jakarta on Monday.
IMF data shows that credit booms in Thailand, Argentina, Uruguay, Greece and Brazil were followed by banking crises. Therefore, he suggests regulatory reform as a method of promoting financial development and stability simultaneously.
Breuer said the money market was the cornerstone of a competitive and efficient system of market-based intermediation because it stimulated an active secondary bond market by reducing the liquidity risk attached to bonds and other term financial instruments and assisting financial intermediates in managing liquidity risks.
"It is also prerequisite for the development of derivative markets where funding costs are a key variable, particularly the case with the forward foreign exchange market," he explained. (evi)
