Financial Omnibus: A new era of reforms in Indonesia

The PPSK Law will increase economic capabilities and enable digitisation

The COVID-19 pandemic pushed sustainable economic spending at the forefront of financial reforms. Developing nations in particular had to identify resilient financial models and reform archaic regulations. Indonesia was one such country that made swift moves to plug the gaps. Through its Financial Sector Development and Strengthening Reform Bill (PPSK), Indonesia has kickstarted the era of financial transformation.

Termed the Financial Omnibus, the PPSK law has amended 17 laws in the financial sector, including banking, capital markets, insurance, and pension. At the core of these reforms is the upholding of the Financial Services Authority (OJK) as the apex supervisory and regulatory body.

The PPSK law has the potential to accelerate financial innovation in Indonesia since it lays emphasis on digitisation of financial services.


When Covid struck in 2020, the Jokowi government was tasked with financing public spending in healthcare. This included offering food and medical aid during lockdowns, hospitalisation, and vaccination expenses. Indonesia raised $4.3 billion using a pandemic bond to fund these costs. However, a long-term solution was the need of the hour.

On one hand, there was a need to remove entry barriers to finance for Indonesian citizens. On the other, there was a need to monitor the addition of riskier instruments such as crypto. A joint consensus paved the way for a financial omnibus in the form of the PPSK law.

While the PPSK law aims to build an accessible financial system, there are concerns that the government may mandate bond purchases by the central bank during tough economic situations. However, the government has assured all regulators about complete autonomy in their daily operations.

Sector Old Law PPSK Law
Banking Commercial banks and rural banks can be cooperatives. Commercial and rural banks have to become limited liability companies.
Insurance No guarantees of fund safety against licences being revoked, so policy payments were at risk. Deposit Insurance Corporation will guarantee fund safety if an insurer’s licence is revoked.
Fintech Fintech companies are regulated by the central bank and OJK. Fintech entities will have to register with a dedicated association and also get opportunities to test pilot products under sandbox programmes.

Source: Conventus Law


Having witnessed a financial crisis in 1998, Indonesia sought to take steps to build reform-led financial stability. In addition, President Joko Widodo wanted to cut bureaucratic hurdles to finance. The PPSK law was an answer to all these concerns. It took a three-pronged approach to overcome the stumbling blocks:

  1. Unbiased regulations: The PPSK law prohibits politicians from being nominated to the boards of OJK, Central Bank of Indonesia, and the Deposit Assurance Agency (LPS). At the same time, regulatory officials are barred from getting involved in politics. This brings a higher degree of accountability.
  2. Financial stability: The central bank has the responsibility to issue Digital Rupiah in addition to physical currency notes, a step that will enable the creation of a Central Bank Digital Currency. It also has the authority to buy bonds from private companies to solve liquidity issues in the economy. LPS has the goal of forming regulations to guarantee insurance policies in case the insurer’s licence is revoked. To ensure investor protection, crypto and allied digital assets have also been brought under OJK’s purview.
  3. Digital economy: OJK estimates that the implementation of the PPSK law will cartalyse the digital economy. This in turn has the potential to increase Indonesia’s Gross Domestic Product (GDP) to ~$1.6 trillion (IDP 24,000 trillion) by 2030, almost five times the figure reported in the third quarter. Fintech innovation will help achieve the digital economy’s hidden potential by encouraging e-payments and technology-led stock market operations.

Fintech institutions will also get the liberty to test out need-based products and  services through pilot projects under the sandbox initiative. Trial Projects, if successful, will get an opportunity to convert into licensed products.

The Golden Indonesia 2045 mission envisions Indonesia as a developed country taking a spot among the top five economies in the world by 2045. For this to happen, fiscal revitalisation of the country’s financial system is indispensable. The PPSK law will act as a stimulant  in this endeavour.

About the Author

Tripudjo Soemarko

Tripudjo Soemarko is the Advisor – Government Relations of our Indonesian subsidiary, Indonesia Business Partners. He is a career banker with over 30 years of work experience at HSBC.