In its 2007 Financial Stability Review, the Bank of Indonesia (BI) categorizes the Bank Indonesia Real-Time Gross Settlement (BI-RTGS) system as the country's systemically important payment system. Other systems such as the clearing system and card-based instruments are defined as system wide important payment systems (SWIPS) according to information provided on the BI website. The Executives' Meeting of East Asia-Pacific Central Banks and Monetary Authorities (EMEAP) in a 2002 report notes that in general, the BI-RTGS largely complies with the Committee on Payment and Settlement System's Core Principals for Systemically Important Payment Systems (CPSIPS). In a 2007 report, however, the BI observed that it conducted a self-assessment of the BI-RTGS system in which it concluded that several of the CPSIPS were not being observed. The self-assessment is not publically available. Therefore, we are unable to provide the specific findings and corresponding remedies found in the report. The BI's 2007 report, however, indicates its intent to work towards complying with the CPSIPS. To that effect, the BI has improved elements of the BI-RTGS system's security, such as system reliability. On the regulatory front, the BI's role was redefined to that of a regulator, administrator, and supervisor. The BI has announced on its website its intention to implement the next generation of the RTGS system. According to the BI's 2007 report, most large transactions are settled through BI-RTGS, and during the first semester of 2007 the system processed close to 93% of all settlements.

General Overview

According to information provided in the BI 2007 Financial Stability Review and on the BI's website, the Bank Indonesia Real-Time Gross Settlement (BI-RTGS) is categorized as the systemically important payment system (SIPS) in the country. Other systems, such as the clearing system and card-based instruments, are defined as system wide important payment systems (SWIPS). A 2002 report by the Executives' Meeting of East Asia-Pacific Central Banks and Monetary Authorities (herein referred to as the 2002 EMEAP report) states that "overall [the] BI-RTGS has largely complied with the core principals for systemically important payment systems" (p. 152). However, in its 2007 report, the BI refers to a self-assessment conducted by it, according to which the BI-RTGS has yet to comply with several core principles (CP). This conclusion is further evidenced by the BI's Deputy Governor's comments in June 2006, when he introduced the 2005 Payment System Annual Report. In this report, available on the BI website, the Deputy Governor states that the payment system in Indonesia still faces some obstacles and that improvement is needed in the areas of counterfeit money, adequate money supply in remote zones, and improved management in money distribution in the banking sector. The Deputy Governor assured all stakeholders that issues of this nature will be swiftly solved.

The 2002 EMEAP report notes that the BI-RTGS was introduced in November 2000 to help reduce credit risks, liquidity risks, and systemic risks. According to the BI's 2007 report, "Bank Indonesia has the responsibility to run BI-RTGS as a regulator, administrator and supervisor of the system" (p.57). The EMEAP report observes that payment systems are governed by the commercial code and the 1999 Act of the Republic of Indonesia concerning the Bank of Indonesia (Central Bank Act). The commercial code provides the rules to various types of payments such as checks and promissory notes and the Central Bank Act establishes the regulatory framework for interbank clearing and settlement systems. Members of the BI-RTGS have established by-laws that govern interbank transactions. The by-laws committee serves as the arbitrator to solve disputes and has the responsibility to amend or revoke existing rules. In addition, it also has the responsibility to cover issues that deal with: (1) specific cut-off times for payments; and (2) compensation for payments made by error and compensation agreements. Furthermore, the BI's 2007 report observes that the central bank frequently performs risks assessments with the objective to determine factors that can generate problems. These assessments are performed using different approaches one of which is the Control Self Assessment.

The BI's 2007 report states that all settlements amounting to Rupiah (Rp) 100 million or more are cleared using the BI-RTGS system. For the first semester of 2007, the BI-RTGS accounted for more than 92% of the value of transactions settled whereas clearing system had a share of 3.5% and 4.5% representing payments settled by non-BI payment systems. The quarter-to-quarter value growth was up by 38% while the quarter-to-quarter volume growth was 6% higher from 2006 to 2007. The interbank transactions represented the biggest share in terms of transaction value and volume, 44% and 87% respectively for the first half of 2007.

All commercial banks located in Jakarta have been participants of the BI-RTGS system since the first day of implementation. According to the Deputy Governor of the BI, in his keynote speech to the South East Asian Central Banks (SEACEN) Payment System Directors' Meeting, the BI is working on generating a second BI-RTGS system. He further notes that the introduction and implementation of BI-RTGS II will: (a) help decrease costs associated with access particularly for small banks; (b) strengthen the back up infrastructure; and (c) allow for more liquidity savings.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

II

According to the BI's 2007 Financial Stability Review, "Bank Indonesia has the responsibility to run BI-RTGS as a regulator, administrator and supervisor of the system" (p.57). The 2002 EMEAP report notes that payment systems in Indonesia are governed by the commercial code and the 1999 Central Bank Act. The commercial code provides the rules for various types of payments such as checks and promissory notes while the Central Bank Act establishes the regulatory framework for interbank clearing and settlement systems . Nonetheless, there is little information publicly available addressing Indonesia's actual compliance with this principle.

Members of the BI-RTGS system have established by-laws that govern interbank transactions. The by-Laws cover issues like: (1) specific cut-off times for payments; (2) compensation for payments made by error and compensation agreements; and (3) gives the committee the authority to act as an arbitrator when disputes arise. The by-Laws committee also has the responsibility to amend or revoke existing rules.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

II

There is limited information publicly available as to Indonesia's compliance with this principle. However the 2002 EMEAP report demonstrates the structure of the BI-RTGS system. Like most current payment systems, Indonesia's system has a V-shape structure, with messages sent through the BI from sending members to receiving members. The 2002 EMEAP report provides a schedule for the operations window time which starts at 6:30 am and has a cut off time set for 7 pm, Jakarta time. The time window is set so that all three national time zones are covered, and gives members sufficient time to conduct their transactions. According to the EMEAP report, in order for some of the risk associated with clearing systems to be mitigated, a maximum per-transaction cap has been implemented where a transfer exceeding Rp 1 billion cannot be processed through the netting system. The BI-RTGS system also provides for queuing systems and gridlock resolution instruments to help reduce and eventually eliminate gridlock in the system.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

II

According to its 2006 report on the BI-RTGS system, the BI asserts that the introduction and implementation of the BI-RTGS system has helped reduce credit risks, liquidity risks, and systemic risks. More specifically, using the BI-RTGS system decreases the probability of systemic risk in the following ways: (a) reduction in intraday interbank exposure; (b) elimination of systemic risk that exists in payments in a net settlement; and (c) settlements can now be processed at any time during the window time. Nevertheless, there is insufficient information publicly available as to Indonesia's compliance with this principle. The BI's 2007 report observes that the central bank frequently performs risks assessments with the objective to determine factors that can generate problems. These assessments are performed using different approaches one of which is Control Self Assessment.

Per the 2006 BI report, to minimize the net settlement risk, per transaction clearing cap was set at Rp 100 million. And in the event that a debit transaction is less that what the sender has in their account, the transaction moves to the queuing system where the priority is first in first out (FIFO). The system moves to bypass FIFO when there is a heavy congestion to help reduce the increased level of transactions in the BI-TRGS system queue. Also to resolve intraday gaps when transactions are placed in queuing for a short period, Bank Indonesia uses Intraday Liquidity Facility (FLI), where there are a set of rules to be observed.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

II

According to the 2002 EMEAP report, all transactions are executed in a real-time basis and once processed the settlement is final and irrevocable . However there is little information publicly available addressing Indonesia's actual compliance with this principle.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

There is little information publicly available with regards to Indonesia's compliance with this principle. The 2002 EMEAP report, however, states that "all transactions received at the BI-RTGS central computer are executed in a real time basis as long as there are enough funds at the sending bank's settlement account. Settlement is considered final and irrevocable" (p. 152).

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

II

Per the 2002 EMEAP report, "BI-RTGS allows banks to send credit transfer and requires all of them to have sufficient funds in their settlement accounts at Bank Indonesia (no money no game)" (p. 151). Nonetheless, there is little information publicly available addressing Indonesia's actual compliance with this principle.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

II

It was observed in the BI's 2006 report that an independent audit was commissioned by the BI to audit all IT equipment used to run the BI-RTGS system. The auditor found and concluded that the system was performing well and was secure. The BI's 2007 report states that in the event of a system shutdown, the BI has a strong contingency plan in place along with an adequate infrastructure and a technically able human capital. Nevertheless, there is scant information publicly available regarding Indonesia's compliance with this principle.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

II

Information provided on the BI's website indicates that the BI aims to create efficiency in conjunction with the goal of consumer protection. Nonetheless, there is little information publicly available addressing Indonesia's actual compliance with this principle.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

II

Information provided on the BI's website indicates that the BI seeks to provide equitable access to participants. However, there is insufficient information publicly available addressing Indonesia's actual compliance with this principle.

X. The system's governance arrangements should be effective, accountable and transparent.

II

There is little information publicly available as to Indonesia's compliance with this principle. According to the 2002 EMEAP report, "in order to ensure uniformity of interbank practices for interbank payments among BI-RTGS member banks, member banks have developed a set of interbank bye-laws and regulations" (p.153).

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

II

According to the 2006 BI report, its objective for payment systems are to provide: (1) fast, efficient and secure channels to transfer funds; (b) higher certainty in payment with the unconditional and irrevocable instrument; (c) access to members' account information in real time; (d) lower settlement risks; and (e) improve member skills in liquidity management. However, there is little information publicly available addressing Indonesia's actual compliance with this principle. According to the BI website, the BI has the authority to implement policies and regulate the national payment system. The BI owns and runs the BI-RTGS and clearing systems of Indonesia.

B. The central bank should ensure that the systems it operates comply with the Core Principles.

II

There is little information publicly available addressing Indonesia's actual compliance with this principle. However, the BI is responsible for regulating and safeguarding the smooth and efficient operation of the payment systems in the country, according to the BI website. The BI's 2007 report observes that the central bank frequently performs risks assessments with the objective to determine factors that can generate problems. These assessments are performed using different approaches, one of which is the Control Self Assessment.

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

II

The BI is responsible for regulating and safeguarding the smooth and efficient operation of the payment systems in the country (BI website). The BI's 2007 report observes that the central bank frequently performs risks assessments with the objective to determine factors that can generate problems. These assessments are performed using different approaches one of which is Control Self Assessment. Nonetheless, there is little information publicly available addressing Indonesia's actual compliance with this principle.

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

There is little information publicly available addressing Indonesia's actual compliance with this principle.