Indonesia is preparing to revamp its financial laws. Here's how it could look

After two years of fruitless attempts and market resistance, Indonesia is likely to implement major changes to its banking sector regulation as soon as this week.

The proposed legislation seeks to broaden the central bank's mandate and strengthen its authority to purchase government bonds during times of crisis, as it has done in the last three years to support Southeast Asia's largest economy. By the end of 2022, the central bank would have purchased debt papers worth 1,144 trillion rupiah (US$73 billion). The law also aims to keep legislation up to date with the fast changing industries of financial technology and cryptocurrency.

After the finance panel approved the bill on December 8, Parliament is scheduled to vote on it this week. Here is all you need to know about financial sector reform:

Why is Indonesia changing its financial regulations?

Existing regulations are intricate and frequently overlap, if not contradict, one another. They're also out of date in light of the recent fintech boom and the central bank's aspirations for a digital rupiah.

The government expects the adjustments to help strengthen local capital markets in order to finance the economy's needs.

It also aligns with President Joko Widodo's goal of changing legislation to reduce red tape and simplify procedures, particularly so that financial authorities can respond to crises more quickly.

What changes will the central bank see?

If passed, the bill will give Bank Indonesia the right to assist the government by purchasing bonds when the president declares a crisis, reinforcing the central bank's unusual step during the pandemic, which the central bank and finance ministry had termed as a "one-time" measure.

In addition to its present duty to preserve rupiah and price stability, lawmakers want the central bank to "participate in preserving financial system stability in order to support sustainable economic growth" and "keep payment system stability."

An previous drive to expressly incorporate job creation and economic growth in Bank Indonesia's mandate, which analysts warned would jeopardize the bank's independence, was eliminated from the latest law.