The revision of the Financial Sector Development and Strengthening Law (P2SK Law) was approved by the Government and the House of Representatives (DPR) during the first-level deliberation on June 4. The revision aims to strengthen the national financial system and maintain market confidence. The approval came amid volatility in the domestic financial market, marked by the depreciation of the rupiah and a sharp decline in the Composite Stock Price Index (IHSG), driven by both global and domestic factors.
Faculty of Economics and Business UGM (FEB UGM) lecturer Rijadh Djatu Winardi viewed the revision of the P2SK Law as a positive, essential step toward strengthening the national financial ecosystem. Expanding the authority of the Financial Services Authority (OJK) to oversee crypto assets, strategic commodity exchanges, and public funds such as the Hajj Fund and the Public Housing Savings Program (Tapera) was an appropriate decision. This measure effectively closes regulatory gaps that have long remained unclear.
“In my view, strengthening the role of the Indonesia Deposit Insurance Corporation (LPS) and implementing an early crisis detection mechanism are highly relevant adjustments for mitigating today’s financial risk dynamics,” he said on Thursday (Jun. 19).
However, Rijadh highlighted several concerns regarding the institutional governance aspects of the revised law. The expansion of Bank Indonesia’s (BI) mandate to a dual mandate and a close examination of the substantial role of the Government and DPR in overseeing various financial institutions. One concern among the public, including investors, is the potential for excessive intervention by the executive and legislative branches. Such a situation could erode the independence of financial regulatory institutions.
“These institutions should be able to carry out their duties and make decisions objectively, based solely on their mandates and market conditions, not because of political pressure,” he stressed.
Rijadh explained that the law should not be viewed as a short-term solution. The P2SK Law is part of a structural reform whose impact will only be apparent over the years through implementing regulations and institutional arrangements. The current market situation reflects a short-term crisis of confidence. The sequence of events illustrates this point.
The law was approved on June 4; the rupiah reached its weakest level in more than 25 years on June 8, falling to Rp18,188 per U.S. dollar, surpassing its lowest point during the 1998 financial crisis. What ultimately stabilized the market was not the law itself but monetary policy. Following BI’s unscheduled increase of the BI Rate from 5.25 percent to 5.50 percent on June 9, the rupiah strengthened within two days to around Rp17,800-17,900 per U.S. dollar.
“In my opinion, the P2SK Law provides a strong long-term foundation, but today’s recovery in market confidence is being supported by policy responses, not by the law itself,” he said.
According to Rijadh, the market turmoil has been largely driven by external factors. Conflict in the Middle East, which threatens the Strait of Hormuz, has pushed global oil prices to USD 93-94 per barrel, far above Indonesia’s 2026 state budget assumption of USD 70 per barrel. In addition, expectations that the U.S. Federal Reserve will maintain higher interest rates for longer have strengthened the U.S. dollar.
“This is a familiar pattern that consistently triggers capital outflows from emerging markets,” he explained.
Beyond global pressures, Rijadh argued that domestic factors have amplified the impact on the rupiah and IHSG. Concerns over the state budget (APBN), increasingly vulnerable due to spending allocations for programs considered wasteful, populist, and less supportive of long-term economic productivity, have contributed to market unease. Technical factors such as MSCI and FTSE index rebalancing, which prompted asset sell-offs, have played a significant role in the rupiah’s weakening and the stock market’s decline.
“Global sentiment may have sparked the fire, but concerns over fiscal conditions and market perceptions made it spread. If this market decline were purely driven by global factors, all ASEAN countries would have experienced similar declines. In reality, that is not what happened,” he remarked.
In closing, Riyadh outlined several measures that BI can take to address the situation. In the short term, BI needs to pursue not only interest rate hikes but also interventions in the spot market, the non-deliverable forward (NDF) market, the domestic non-deliverable forward (DNDF) market, and government securities (SBN), while increasing the yield of Bank Indonesia Rupiah Securities (SRBI) to 7.65 percent. The results have been visible, with the IHSG rising to 6,254 on June 18 and the rupiah strengthening to Rp17,832 per U.S. dollar.
Nevertheless, this recovery remains non-structural. The stock market rebound has been driven largely by domestic investors and tactical foreign buying rather than the return of sustained foreign capital inflows, as foreign funds continue to exit the market overall. This means stabilization remains fragile and costly, as maintaining high interest rates places burdens on economic growth and public borrowing costs.
“Looking ahead, I believe the key lies in areas beyond BI’s authority, namely fiscal credibility and policy coordination. Monetary policy cannot work alone. What the market is waiting for most is a clear signal of fiscal discipline and, ironically, assurances that BI’s new dual mandate will not compromise its independence in maintaining inflation. This is where the implementation of the P2SK Law will truly be tested,” he concluded.
Author: Fatihah Salwa Rasyid
Editor: Gusti Grehenson
Post-editor: Jasmine Ferdian
Photo: Shutterstock