UNAIR NEWS – Indonesian government’s plan to establish the Indonesia International Financial Centre (PFII) in Bali has drawn critical responses from economic experts regarding competition in the global financial market. Professor of International Economics at the Faculty of Economics and Business (FEB), Universitas Airlangga (UNAIR), Prof Rossanto Dwi Handoyo SE MSi PhD, highlighted the importance of domestic macroeconomic regulatory readiness in order to face competition in the global financial system.
According to Prof Handoyo, designating Bali as the Indonesia International Financial Centre (PFII) is a strategic move by the government to attract foreign currency liquidity while competing with Singapore’s dominance in the regional financial market. However, he emphasised that the initiative must be accompanied by strong safeguards for the national economy to prevent it from becoming a new source of vulnerability. “We want to attract investors by leveraging Bali’s appeal. However, what is truly crucial is the readiness of our financial sector infrastructure and the credibility of our macroeconomic management with investors,” he said
Risks of capital flight and the domestic financial sector
Although the bill is still under deliberation in the House of Representatives (DPR), Prof Handoyo explained that, if the Indonesia International Financial Centre (PFII) were to adopt a free capital movement policy, it could create new vulnerabilities for Indonesia’s macroeconomic stability. He added that proposed tax incentives, such as dividend tax exemptions and lower corporate income tax rates as well as reduced income tax rates for expatriates working in the centre, have also raised concerns over potential tax avoidance and even white-collar crime
Prof Handoyo noted that PFII is designed as a special financial zone and, therefore, should operate within a clearly localised regulatory framework. Without carefully designed regulatory boundaries, he warned, the incentives offered by PFII could reduce state revenue through financial leakages. “PFII must not become a gateway into Indonesia’s broader financial system. Funds flowing into PFII should remain ring-fenced so they do not spill over into our domestic macro-financial system,” he stressed.
On the other hand, the proposal to apply foreign legal systems, such as English or Singaporean law, in arbitration proceedings has also drawn serious concern. Prof Handoyo argued that the government should uphold the sovereignty of Indonesia’s judicial institutions in overseeing all business activities conducted within the territory of the Republic of Indonesia. “I find it strange if, when a dispute arises, it is resolved under laws other than those of the Republic of Indonesia,” he remarked.
An ideal PFII scenario for national economic prosperity
Prof Handoyo emphasised that, if managed properly and responsibly, PFII has significant potential to strengthen national financing and mitigate volatility in the rupiah exchange rate. He noted that foreign capital inflows should not merely circulate within the financial sector but should also generate employment opportunities in the real sector. “What matters most is how PFII can improve the welfare of the people,” he explained.
Ultimately, PFII should deliver tangible benefits to the development of the real sector and improve public welfare. Prof Handoyo stressed that the government must establish a transparent legal framework with no room for multiple interpretations in order to prevent losses to the state. He also emphasised the need for strong safeguards for the domestic workforce to ensure that local workers are not confined to lower-level operational roles. “Fairness, transparency, and accountability must be upheld at all times,” he advised
Author: Putri Andini
Editor: Ragil Kukuh Imanto
