Indonesia looks to blockchain to fix its dodgy data challenges

FILE PHOTO: Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration/File Photo

By Gayatri Suroyo and Tabita Diela

JAKARTA (Reuters) - Indonesia, like other emerging markets, has historically struggled to keep accurate records due to a lack of expertise and resources, but the public and private sectors are now looking at blockchain technology to overcome some of these challenges.

Blockchain, the digital data structure best known for underpinning cryptocurrencies, provides a shared record of information maintained and updated by a network of computers rather than a centralized authority.

This approach to data management could help Southeast Asia's largest economy, which has difficulties keeping accurate data and control over everything from food output to personal information for its 250 million people across 17,000 islands.

The tax system is one such area and tech firm Online Pajak has launched a blockchain-driven app that allows customers to share encrypted tax data with institutions such as the tax and treasury offices, banks and the central bank.

As well as increasing transparency and reducing paperwork and errors, it would mean tax payers can know for sure they have paid their dues, said Online Pajak founder Charles Guinot.

"Today in Indonesia, there's no proof you've paid," Guinot said at a briefing to launch the product last week.

The blockchain verification process could also help address doubts that hang over elections in countries like Indonesia.

Horizon State, an Australian firm, plans to launch a phone app on Sumatra island in July, which would enable direct polling on various local policy issues.

Nimo Naamani, the firm's co-founder, said the system uses blockchain verification and could reduce voting fraud and address the electoral challenges faced by countries with large populations dispersed across remote towns and islands with poor access.

Indonesian banks are also looking at the technology: a survey by Bain & Company published last year found about 80 percent of executives at financial institutions think blockchain will significantly impact markets. A similar percentage expects to start using it before 2020.

Rico Usthavia Frans, director of digital banking and technology at Bank Mandiri, Indonesia's second-biggest bank by assets, said it was looking at applying blockchain for trade financing, but lenders were waiting for guidelines from regulators.

The Financial Services Authority has a dedicated team to study how blockchain could help the industry, said Fithri Hadi, the regulator's director of finance innovation.

Crucially, policymakers see the potential to reduce graft in Indonesia's public programes.

Farm subsidies, for example, are allocated in the state budget based on the previous year’s harvest, though such harvest production statements are difficult to verify due to the large numbers of small farmers. This increases the risk of such estimates being overstated in order to receive more funds.

The government is looking at how it can use the technology directly to authenticate information from fund recipients.

"We want to use the technology platform to be able to identify those groups of people who need to get the benefit," Finance Minister Sri Mulyani Indrawat told Reuters, noting her staff are looking at ways to use blockchain for tasks such as subsidy disbursement to micro-loan programes.

Blockchain has gained traction in other emerging markets, such as Estonia, which has employed it for a number of services since 2012. Applications include national health, judicial, legislation, security and commercial code systems.

However, Iwan Djuniardi, the tax office's director of transformational technology, cautions the pace of adoption in Indonesia could be slower.

"It takes time to process a management change before we adopt a new technology. Even cloud technology is still being debated, let alone blockchain," Djuniardi said.

(Reporting by Tabita Diela and Gayatri Suroyo; Additional reporting by Cindy Silviana; Editing by Ed Davies and Sam Holmes)

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