The History of IDIC
The Banking Industry is an essential component that is needed to ensure national economic stability. As a result, the conditions and state of the banking industry considerably affects or impacts national economic stability.
This is especially true in the case of the monetary and banking crisis that struck Indonesia in 1998. This multi-dimensional crisis resulted in the sharp devaluation of the Rupiah, the liquidation of 16 banks and subsequent decline in public confidence for the country’s banking system.
In its bid to address and effectively survive the crisis, Indonesia’s Government established a series of policies that included efforts to provide protection to any bank’s payment responsibilities, including public deposit (known as the blanket guarantee scheme). The scheme was endorsed by virtue of The Republic of Indonesia’s Presidential Decree Number 26 of 1998 regarding Guarantee on Lialibilities of Commercial Banks and the Republic of Indonesia’s Presidential Decree Number 193,of 1998 concerning Guarantee on Rural Banks Payment Responsibility.
The Blanket Guarantee succeeded in restoring public confidence in the banking system. However, the excessive scope and nature of the guarantee itself had proven to be a moral hazard for both bankers and depositors.
To address the situation and instill sense of security among the depositors in the banking system while, at the same time, ensuring a stable banking system, the Blanket Guarantee was subsequently replaced by a limited guarantee system.
Law Number 10 of 1998 on banking mandated that the LPS (or IDIC as it is known in its English abbreviation) should be established to protect depositor’s funds.
Eventually, on 22 September 2004, the President of Republic of Indonesia enacted the Republic of Indonesia Law Number 24 concerning IDIC. With regards to the law, IDIC is established as an independent institution that functions to insure depositor’s funds and actively participates in maintaining stability in the banking system in accordance with its authorized mandate.
The Law effectively took effect on 22 September 2005 and IDIC officially began its operations as of that date.