Kartika Wirjoatmodjo, President Director and CEO, Bank Mandiri: Interview

Interview: Kartika Wirjoatmodjo

What is needed to subdue economic headwinds?

KARTIKA WIRJOATMODJO: Indonesia faces two key economic challenges: its dependency on imports and slow export growth. The Indonesian market is vast and industrial manufacturers see healthy demand; however, they are faced with operational hurdles related to acquiring land and obtaining permits. To combat this, the government introduced special economic zones, fiscal incentives for specific industries and established the online single submission (OSS) system. The launch of the OSS aims to increase transparency and open up new opportunities for the private sector, although its use should be extended further to cover tax holidays and land permits. However, a relaxation of permits will not suffice; an ecosystem for businesses must first be created and efforts must be made to raise awareness among investors. Technological disruption and macroeconomic volatility in particular have had a direct impact on businesses since 2016. The country requires leaders who can navigate these headwinds, with the next five to 10 years set to determine whether Indonesia will be among the top global economic powerhouses by 2035.

How would the banking sector benefit from a QR code-based payment system?

WIRJOATMODJO: The LinkAja QR-code-based payment platform was created over the course of three months. Various state-owned enterprises (SOEs) – including Bank Mandiri, Telkomsel, Pertamina and others – joined together to ensure that a strong and robust e-payment platform will be launched in April 2019. Indonesia has initiated a high number of use cases – for purposes including payments for trains and electricity distribution, as well as at gas stations – yet SOEs had never before shared use cases to create a single platform. The LinkAja system can be used to pay bills, access the train network and toll roads, or buy vouchers. This payment platform will directly compete with the current market, and will be open to collaboration with other players.

What could encourage financial institutions to consider mergers and acquisitions?

WIRJOATMODJO: There is a strong urge for consolidation on both a competitive and a liquidity level. Realistically, there is only space for 40-50 banks in Indonesia. However, since it is a democratic country, the Financial Services Authority cannot easily impose consolidation. Rather, banks themselves need to realise that they should re-invest their capital expenditure in order to stay competitive. For example, our capital adequacy ratio amounted to 21%, which means that we have 3-4% excess capital to be deployed that could be used to acquire a smaller bank. Thus far, consolidation has largely been driven by foreign players.

How effective have diversified infrastructure financing efforts been to date?

WIRJOATMODJO: Since 2016 President Joko Widodo has pushed SOEs to develop infrastructure to drive economic growth. The private sector was not excluded from this, and the government had to play a role due to the lack of capital. Between 2019 and 2024 the government’s primary infrastructural focus will therefore be on strengthening public-private partnerships and increasing involvement of the private sector. For greenfield projects, constructing facilities in a foreign country often makes it difficult to obtain capital market financing because these projects still largely rely on bank loans. The light rail transit project in Jakarta, for example, was partly financed through private banks, as well as assisted by the government provision of guarantees for the completion of projects. This kind of innovative financing must be pushed in the future. The biggest challenge to securing capital remains cross-border financing, but there are some successes made in this area. Jasa Marga, a local road-toll operator, launched the first London-listed Komodo bond in 2017, despite US Fed rate hikes lowering its value. This shows that there is demand for infrastructure operating assets.