agus d w martowardojo : maintaining financial stability amid continued economic growth deceleration keynote speech by mr agus d w martowardojo, governor of bank indonesia, at the discussion and launching of the financial stability review book, jakarta, 10 december 2015. * * * honorable, our predecessors governors of bank indonesia, members of the board of governors of bank indonesia, officials in the ministries and state agencies, banking leaders representatives of industry associations academicians and economic observers attendees and invitees, assalamu ’ alaikum warahmatullahi wabarakatuh, good afternoon and best wishes to us all, first of all, let us pray our praise and gratitude to allah swt, the god almighty for only upon his grace and blessing, we can all gather here in good health to participate in the discussion and launching of the book on financial stability review ( kajian stabilitas keuangan - ksk ) no. 25, september edition year 2015. the development of this ksk constitutes a part of the transparency and accountability of bank indonesia ’ s duty implementation in the field of macro - prudential. as one of the routine semester publications, ksk contains the results of assessment and review of bank indonesia toward the condition of the national financial system. such assessment also covers our monitoring to the sources of vulnerability and imbalance of the financial system that can be found in the financial markets ; financial agencies / institutions, namely households and corporates ; banking ; and non - bank financial institutions ( institusi keuangan non - bank - iknb ) ; and also financial infrastructures. due to the deceleration of economic growth experienced by indonesia, it is critical for bank indonesia as the authority in the field of macro - prudential to continue maintaining the stability of financial system. especially, as the dynamics of the global financial system continue to remain under uncertainties. therefore, the edition of ksk this time takes up the theme of “ maintaining financial stability amid continued economic growth deceleration ” we are convinced that our duty in maintaining the stability of economy will be more challenging. hence, we expect that depth assessment and review on the condition of national financial system will be a valuable reference for us in taking measures in the future. ladies and gentlemen, the condition of indonesia ’ s financial system in 2015 in general is still overwhelmed by various challenges and fluctuations, both sourced from global and domestic. the still weak global economic recovery, the continued declining price of

in the banks ’ portfolios. for our economy to recover, we had to create a strongly capitalized and well managed banking sector in line with international standards. this is our objective. to reach it we have first to address the current situation ; that is very low capital base and excessive number of institutions which have not been able to institute the necessary reforms and improvements to their financial conditions, management and operational systems. clearly, the banking sector has been one of the most seriously affected segments of the economy during the crisis. the effects were transmitted primarily through the following ways. ( i ) the sharp depreciation of the rupiah suddenly blew up the rupiah value of banks ’ liabilities denominated in foreign currencies and put the banks with short position in serious problems ; ( ii ) the economic crisis put banks ’ customers ( debtors ) in problems which depressed the value of banks ’ assets ; and ( iii ) the tight monetary policy to stabilize inflation and exchange rates, and the concomitant high interest rates, resulted in negative spreads for the banks. all the factors i cited earlier imply depletions of banks ’ capital base. and the longer the problems remain, the sharper the depletion of banks ’ capital will be. indeed, the results of the due diligence being run on the banks in 1998 show how deep the impact of the crisis on the banking sector has been. we fully realize that : ( a ) the recapitalization program is likely to be costly ; ( b ) the recovery of the economy relies upon the recovery of the banking system, and thus on the recapitalization program ; and ( c ) the failure of the recapitalization program would amount to the very costly delays to economic recovery ; then the recapitalization program would have to be designed and implemented very carefully to assure its success. it is for this purpose that our bank recapitalization program carries the following characteristics. ( i ) the estimates of recapitalization needs are done very realistically, or even conservatively through the due diligence process conducted by international auditing firms on each and every bank. the conservativeness of the estimate would provide some cushion to the changing environment during the process of recapitalization. ( ii ) the criteria for the banks to be eligible to participate in the government - supported recapitalization program are made very clear and transparent. ( iii ) the process of eligibility evaluation is conducted by four