Indonesian President Joko Widodo says his nation must work to reduce its dependency on Western payment systems, to avoid being at risk of disastrous economic consequences, should his nation ever find itself at odds with the West politically, and placed under Western sanctions.
While addressing a business forum in Jakarta this week, the president made the case that Indonesia must take measures to avoid suffering the same fate as Russia, after the US, EU, and their allies sanctioned crucial sectors of the Russia economy following the Russian special military action in Ukraine.
On Wednesday, at a gathering to promote Indonesian products and services, he said, “Be very careful. We must remember the sanctions imposed by the US on Russia. Visa and Mastercard could be a problem.”
Indonesia introduced a Domestic Government Credit Card (KPP) program to facilitate transactions between the central and regional governments last year. At the meeting the president urged Indonesians to adopt domestic systems, emphasizing that eventually, “everyone should be able to use” locally-issued bank cards so that “we can be independent.”
The Jakarta Post quoted Widodo as saying, “If we use our own platforms, and everybody is using them, from ministries and local administrations to municipal governments, then we can be more secure.”
However experts cited by the Jakarta Post noted that in order to perform the functions of Visa and Mastercard, any domestic alternative would need to be accepted internationally, and they remained doubtful the local providers are prepared for the expensive investments in infrastructure upgrades required to do that.
In an interview with CNBC Indonesia on Saturday, Steve Marta, executive director of the Indonesian Credit Card Association (AKKI), said, the country’s interbank system, GPN, at present only supports local debit cards, and it will require adjustments to serve credit cards properly in international transactions.
Ranked seventh in the world due to a $4.37 trillion GDP based on purchasing parity, Indonesia is a major world economy.
Soon after the United States first targeted Russia with sanctions, following the nation annexing Crimea in 2014, Moscow introduced the Mir payment card system, as it prepared an internal National Payment Card System NSPK, to be rolled out to replace Visa and Mastercard in the event those companies withdrew from the country.
When Russia was hit with more sanctions last year, due to the special military action in Ukraine, international payment systems halted all services. However locally issued Western cards were able to be transitioned to the NSPK, which allowed them to continue to work domestically. Although they will not work internationally, they were given indefinite expiration dates, which will allow their users time to make the full transition to the Mir payment system.
Russia also developed its own financial messaging system, SPFS, which ensures transactions between banks, both domestically and internationally. It is designed to function as a replacement for SWIFT, which has since blocked many Russian banks as part of Western sanctions.
