Securitization process a dilemma for BI<\/p>\n
JAKARTA (JP): The current securitization of assets and
\nliabilities is putting Bank Indonesia in a delicate position,
\nsaid the central bank governor, J. Soedradjad Djiwandono.<\/p>\n
He told a two-day Indonesian capital market forum here
\nyesterday that the securitization process is needed to catch up
\nwith traditional banking activities.<\/p>\n
\"Over the last two years, we have seen an increasing
\nsecuritization of assets, a trend which may well become the wave
\nof the next millennium,\" Soedradjad told the forum, hosted by
\nEuromoney magazine.<\/p>\n
As the securitization process continues, the current
\ndevelopment in private debt securities will probably lead to the
\nrapid expansion of securities products, both in money and capital
\nmarkets.<\/p>\n
\"Led by rapid progress in the capital markets, the direct
\nfinancial system now has also moved to the forefront in the
\ndevelopment of private debt securities such as commercial papers,
\nmedium-term notes, bonds and asset-backed securities,\" he noted.<\/p>\n
Soedradjad said that the current securitization process is
\nmaking a positive contribution to the country's development,
\nespecially in promoting the mobilization of funds. \"It gives
\nbusinesses alternative sources of finance.\"<\/p>\n
At the same time, Soedradjad said, the process helps prepare
\nIndonesia's financial system for globalization in the financial
\nsector.<\/p>\n
\"The global financial system is already a reality in this
\ncountry, especially in relation to money market and capital
\nmarket activities,\" he said.<\/p>\n
He said the process of asset and liability securitization,
\nhowever, has put Bank Indonesia in a very delicate position.<\/p>\n
\"We face two dilemmas. First in the process of
\ndisintermediation... Then there will be more pressure on the
\ncurrency as well as on our monetary management capacity,\"
\nSoedradjad said.<\/p>\n
The process of disintermediation, caused by the rapid growth
\nof direct financing, will certainly lead to greater competition
\nin the banking system.<\/p>\n
Prospective depositors as well as borrowers will eventually
\nhave more deposits or financing alternatives. Prospective
\nborrowers can raise funds by issuing debt instruments, and
\nprospective depositors can invest their money in these debt
\ninstruments.<\/p>\n
\"From history, we can see how events progressed in the United
\nStates before World War I, when there was a clear separation
\nbetween the banking system and the capital market, just as in the
\nUnited Kingdom,\" Soedradjad said.<\/p>\n
Distinction<\/p>\n
That distinction, however, was gradually blurred by the
\ndevelopment of the stock market, which forced banks to get
\ninvolved in the capital market, he continued.<\/p>\n
\"History is repeating itself here, with closer relations
\nbetween the capital market and banking system. This has also
\nhappened in Europe,\" Soedradjad said. \"I am predicting that a
\nsimilar development will take place in Indonesia early in the new
\nmillennium.\"<\/p>\n
\"The central bank has to walk cautiously between the objective
\nof maintaining a prudent banking system and maintaining the same
\nlevel of growth in the system,\" he continued.<\/p>\n
In addition, Soedradjad said, the threat of a major pull-out
\nby foreign investors has put pressure on the central bank to err
\non the side of caution.<\/p>\n
\"It is understandable, that other countries such as South
\nKorea and Taiwan are still very cautious with regards to a wider
\nforeign presence in their domestic stock exchanges,\" he said.<\/p>\n
Despite this vulnerability to major pull-outs by foreign
\ninvestors, Indonesia will continue to open up its financial and
\ncapital markets for foreign investors while maintaining a certain
\nlevel of prudence, Soedradjad said.<\/p>\n
\"I believe I speak for everyone in our banking system when I
\nsay Indonesia looks forward to the next century with great
\nconfidence,\" he said. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/securitization-process-a-dilemma-for-bi-1447893297",
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