The Government, Bank Indonesia, and the Financial Services Authority have agreed on the expansion of local currency settlement cooperation with Malaysia and Thailand - Photo: Bank Indonesia

JAKARTA (TheInsiderStories) – The Government, Bank Indonesia (BI), and the Financial Services Authority have agreed on a smooth payment system through the expansion of local currency settlement (LCS) cooperation for international trade and investment with Malaysia and Thailand, it said in joint statement yesterday.

“This step is inline with the development of the payment system through the expansion of the Bank Indonesia National Clearing System and the launch of the Quick Response Indonesian Standard Code,” BI Governor Perry Warjiyo said in Jakarta on Wednesday (09/04).

The commitment is a series of achievements on the signing of two Memorandum of Understandings between BI and Bank Negara Malaysia and BI with Bank of Thailand to encourage the completion of bilateral trade transactions using the local currencies of each country starting 2016.

Since then, there has been an increase in the use of currencies local to settle bilateral trade transactions, along with a decrease in foreign exchange rate margins. The total trade transactions through LCS continue to show improvement.

In the first quarter of 2019, total trade transactions through LCS using Baht reached $13 million, an increase compared to the same period in 2018 of $7 million. While, LCS transactions using the Malaysian Ringgit recorded $70 million, a sharp increase compared to the same period in 2018 with total amount of $6million.

Such cooperation will provide benefits for business people through reducing transaction costs and increasing efficiency in trade settlement. In addition, this will also provide more options for businesses in choosing currencies for settlement of trade transactions, thereby reducing exchange rate risk, especially amid the current turbulent global financial market conditions, Warjiyo said.

In addition, the third parties also agreed on five other strategic steps to strengthen he manufacturing industry as part of the country’ effort to boost the economic growth. The agreement, among others, is to support logistics efficiency through infrastructure development such as Patimban Port and its supported facilities and Banten province.

Second, the central and regional governments together with BI will encourage more investment by improving the investment climate through a licensing system by implementing Online Single Submission (OSS) version 1.1.

Third, harmonization, regulation and policy programs will be implemented to increase industrial productivity by issuing provisions on the implementation of super deductible tax and issuance of supporting provisions for environmentally-friendly vehicles.

Fourth, BI will encourage financing through environmentally sound financing or green financing, among others by easing the loan to value ratio and down payment, as well as widening the macroprudential intermediation ratio. BI will also expand the scope of funding source components.

Fifth, to support the manufacturing industry, BI will help promote trade and investment in the manufacturing industry through negotiating facilities to become a supplier of global brands.

“This is done by accelerating the ratification of the Indonesia-Australia, Indonesia-European Union comprehensive economic cooperation agreement, and the use of Indonesia’s comprehensive economic partnership agreement with Chile,” Warjiyo said.

BI together with the central and regional governments will also strive to organize the West Java Investment Summit which is an exhibition of trade missions and business matching, and among others by holding trade expo in Indonesia.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com