TEMPO.CO, Jakarta - UNLIKE the other Association of Southeast Asian Nations (ASEAN) economies, the Indonesian economy was barely affected by the Covid-19 pandemic. In fact, when the outbreak subsided, several sectors came out even stronger than the pre-pandemic time. The Financial Services Authority (OJK) recorded quite favorable growths during the period January-February of 2023. Bank credit grew 10 to 12 percent, higher than the rate during the pandemic. Non-bank financing also grew by 14 percent.

The sector that contracted is the life insurance sector as insurance premium income fell. The trigger was none other than the failure of several insurance companies such as Jiwasraya and Asuransi Jiwa Bersama (AJB) Bumiputera to pay claims. “No country can advance if its insurance industry does not advance,” Chairman of OJK’s Board of Commissioners, Mahendra Siregar, said during an interview with Tempo journalists at his South Jakarta office on March 10.

Mahendra manages two offices: his office in Jalan Gatot Subroto and the OJK office in the Bank Indonesia Office Complex in Jalan M.H. Thamrin. The OJK has been vested with new authority and responsibilities through the Financial Sector Development and Strengthening (P2SK) Law passed by the government in December 2022. In an approximately one-hour-long interview, the former deputy finance minister explained the problems plaguing the insurance industry, the global recession, and the carbon market.

What are our current economic and financial conditions?

It was forecasted last year that this year would see a global recession. But early this year, some multilateral agencies and analysts estimated that the slowdown perhaps could be avoided and global recession might not happen at all. The latest forecasts again said that a slowdown would occur possibly followed by a mild recession. This recession is predicted to last until next year globally.

What are the indicators?

Efforts by developed countries such as the United States and European countries to tackle high inflation rates previously believed to be manageable by their central banks through increased interest rates to 5 to 5.25 percent proved insufficient and the rates are now moving towards 5.5 percent. Forecasts in recent days said they could go higher possibly to 5.75 percent. This interest rate policy will have an impact on their growth rates.

The function of their central banks is different from that of our central bank whose job also includes maintaining economic growth, not just stability and inflation. They only keep an eye on inflation. On the other hand, inflation in European countries is mostly caused by supply constraints and limited supplies. Is it due to the post-pandemic issues such as limited logistics, supplies, or high energy and food prices as a result of the war in Ukraine that has even widened as a result of the geopolitical rivalry between world powers?

What are the consequences for Indonesia whose growth is predicted to be around 5 percent?

It will remain the same. Because what we are doing is not just relying on the outside. Instead, we observe the developments out there, try to understand them well, identify, and map the risks and then take initiatives to minimize transmission risks and mitigate them through our preparedness. Based on the above, the performance last year, and the first two months of this year, I don’t see any reason to change that forecast.

Are you still optimistic with the 5.3 percent?

We agree on a minimum of 5 percent. Because of the criteria used in our plan or forecast and looking at the growths in the financial sector in general or in the financial industry, there shouldn’t be any problems to maintain 5 percent or higher.

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Albeit the current global condition?

Yes, we’ve calculated that. First, how it is transmitted from international to domestic. It is transmitted first through trade and investment. Especially for trade, compared with other ASEAN countries, Indonesia is not too exposed to international trade. Our trade to GDP (gross domestic product) ratio is 50 percent max, whereas Singapore’s is 300 percent, Malaysia's 170 percent, Vietnam's and Thailand's 130 percent. So, whatever happens in the international trade arena immediately affects their economies. Meaning our global supply chain is not extremely integrated like theirs. The bottom line is that we are not too dependent on external conditions. Our domestic market is also massive and already effective, not to mention an incredible development potential.

How is the condition of our financial sector? Is there a significant change from last year’s?

As we informed at the annual financial services industry meeting in the first week of February, bank credit grew 10 to 12 percent. That’s the numbers in January and February. So, we hit 11.3 percent, not just last year but also this year. It’s higher than those of the pandemic or even the pre-pandemic times. The average growth of our credit from 2014 to 2019 was around 8 percent.

What’s the cause?

First, we’ve more than recovered from the pandemic. Second, the increasing integrated-ness of the financial sector and economic development and growth, increased inclusion and access. Also, better utilization of financial services in all sectors, be it in corporations, commerce, micro and small businesses, or the public at large.

The pandemic has no effect?

The pandemic helped certain sectors particularly fintech (financial technology). That’s for sure. But it’s the opposite for corporations. Some elements were driven by the pandemic but after the pandemic was over, they got better or they came out stronger. I thought perhaps we were indeed headed towards a sustained and higher growth rate from around 8 percent to around 10 to 12 percent.

The same holds true for non-bank financing particularly multi-finance companies that also expanded 14 percent in the first two months like last year. Then growth in insurance premium income, particularly from general and reinsurances, in the first two months is the same as last year’s. Unsurprisingly, life insurance premium income has contracted. Nevertheless, as a bit of solace, the contraction in the early months of this year is lower than last year’s. But there is still contraction.

Because of the cases such as Jiwasraya and AJB Bumiputera?

Because of (the decline in) trust and also integrity issues. They need to be fixed.

Read the Full Interview in Tempo English Magazine