Highlighting barriers that prevent long-term investors, pension funds and insurance companies operating in Indonesia from developing their full infrastructure funding potential, the BWG emphasized that:
- Adequate portfolios are insufficient to match investor's long-term liabilities, even though the Financial Services Authority of Indonesia (OJK) has already issued regulations whereby non-banking financial institutions must invest 20% of their assets under management (AUM) in Government bonds1 by the end of the year, and 30% by year-end 2017. The BWG welcomes this trend despite general concern about the practical application of this regulation. Indeed, the BWG foresees a shortage of Government bonds available. One solution would be to extend the regulation to private-sector bonds with high-quality ratings (AAA, Aaa, etc.).
- Providing incentives for pension fund and insurance companies to invest in the instruments that support infrastructure financing will require alignment among regulators (OJK, Bank of Indonesia and Ministry of Finance, Coordinating Ministry for Economic Affairs) at the highest level. That said, the BWG is fully aware that regulators are subject to international standards and regulations (i.e. Basel Committee), and are consequently restricted in their ability to change rules. The BWG recommends a consultative approach by facilitating strategic dialogue between the private sector and Indonesian regulators2.
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1 Mainly greenfield projects prepared by SOEs (state-owned enterprises)
2 Following the example of the ASEAN Insurance Regulators and the ASEAN Insurance Council annual meetings