Fortifying the Role of Finance After Indonesia’s Floods

and | 14 March 2026
Monetary, Op-Eds | Tags: Climate Risks, Financial Stability, Governing Finance, Indonesia, Macroprudential Policy

This op-ed was first published in The Business Times on March 14, 2026

Indonesia continues to be on the frontline of extreme weather.

In late February, days of intense rainfall caused flash floods and landslides across Bali. Severe rainstorms also affected Java and other regions. The destruction followed close on the heels of devastating monsoon rains in Aceh and Sumatra in late 2025, which claimed the lives of more than 1,000 people and left 26,000 displaced.

While relief efforts are still under way, the need for a resilient recovery and reforms in disaster management is moving up the national agenda. The country’s financial sector will be key to delivering this objective.

Providing funding to rebuild livelihoods is a critical first step. Immediately after disaster struck in 2025, the Indonesian Banks Association signalled that the banking industry stands ready to support credit relief measures and help communities regain their footing.

The Indonesian Life Insurance Association asked its members to reach out proactively to customers and relax claim requirements. The Financial Services Authority (OJK) eased regulatory requirements for loans to disaster hit areas and instructed insurers to simplify and accelerate claims processing.

Long-term trajectory

The central role of finance in the relief efforts underscores a broader reality: finance stands at the core of our lives. The sector’s decisions are decisive – both for the recovery of the affected regions in the months ahead, as well as for the long-term trajectory of the country as a whole.

Indonesia aspires to be a high-income nation by its centennial in 2045 – becoming a global leader in innovation, ensuring no citizen is left behind, and building a nation strong enough to withstand shocks.

President Prabowo Subianto’s Asta Cita forms the headline ambitions. Behind them are a network of policy priorities so interlinked that failure in one risks dragging down the others – much like a bridge where a single broken cable compromises the entire span.

The flash floods of 2025 are a case in point – highlighting that environmental sustainability is not a decorative add-on to development, but its foundation. When ecosystems decline, communities are left increasingly exposed to adverse events.

Ignore nature loss, and the consequences are rising poverty, mounting fiscal burdens from disaster-related public spending and a shrinking pool of resources for other national priorities.

Accounting for these interdependencies and aligning finance with Indonesia’s priorities is critical. The decisions made in the president’s meetings and parliament today determine the quality of the hospitals, schools and infrastructure the country will have in 2045.

Public funding will not be sufficient to reach its aspirations. The fiscal framework can stretch only so far through spending reprioritisation, subsidy rationalisation and tax reforms.

The country’s sovereign wealth fund, Danantara, can pool national and international capital, but even a well-designed sovereign investment platform has its limits in steering capital flows towards where they are needed most.

A coordinated policy mix that unlocks private finance for sustainable prosperity is key to put national policy priorities within reach.

Governing finance

Indonesia’s central bank and financial regulator are pivotal to pursuing this objective. While they themselves do not build bridges, install energy capacity, or drive technological progress, they shape and oversee the financial system in which these investments either flourish or falter.

The country’s path to its Golden Vision 2045 depends significantly on the choices these institutions make to contribute to the foundations for sustainable growth.

Bank Indonesia’s mandate for low and stable inflation, exchange rate stability, a robust financial system and a functioning payment system sits at the core of these foundations.

Likewise, OJK’s mission to ensure financial sector integrity, transparency and sound risk management is a critical pillar for the country’s competitiveness and development.

Addressing novel risks

In that context, both institutions also play an indispensable role in addressing novel risks. The floods that struck over the last few months underscore this.

Indonesia, as all other countries, is facing a growing list of novel risks, including geopolitical fragility, extreme weather events, cybersecurity breaches, pandemics and financial shocks from algorithms gone haywire.

To address these risks, two priorities stand out: to increase the capacity of the financial system to absorb shocks and to actively build resilience.

Bank Indonesia and OJK have a broad range of instruments to target these objectives. Stress tests and scenario analysis are key first steps to identify vulnerabilities and assess potential impacts.

Ensuring that banks and other financial institutions account for novel risks in their credit and investment decisions is a vital further measure to take action.

Building capital buffers across the financial system to increase its capacity to withstand shocks is equally critical to ensure that, when the next global or local crisis hits, the financial system remains a safety net for the people rather than a burden on the state Budget.

And supporting financial flows into resilience – for example by adding a goal for resilience funding to Bank Indonesia’s macroprudential measures for inclusive financing – can help channel capital to protect communities, safeguard assets and make the economy more robust.

A strategic imperative

Finance is a core pillar for Indonesia’s development needs. The policies and rules that govern finance affect how capital moves, what risks are taken and which priorities are funded.

In moments of crisis, these choices can mean the difference between prolonged vulnerability and a faster, fairer recovery. Over the longer term, they shape whether Indonesia’s growth path is resilient, inclusive and sustainable.

The floods are a stark reminder that finance is never neutral. When well governed, it can absorb shocks, speed reconstruction and strengthen resilience. When misaligned, it can amplify fragilities and lock in future risks.

Ensuring that financial rules, incentives and supervision consistently support national priorities is therefore not a technical footnote – it is a strategic imperative.

By continually adapting policies, coordinating across institutions and steering capital towards long-term objectives, Indonesia’s financial authorities can help turn recovery from disaster into momentum for sustained progress.

In doing so, finance becomes not just a response mechanism after tragedy strikes, but a decisive force in securing the country’s path towards its 2045 vision.

Muhammad Qaisar is a fellow with the Council of Economic Policies.
Togi Prakoso is a policy analyst at the Ministry of State Secretariat of the Republic of Indonesia.

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