Bank Indonesia Review Prompted by Jokowi Call for Coordination
Bank Indonesia Review Prompted by Jokowi Call for Coordination
(Bloomberg) -- The draft bill to overhaul Bank Indonesia’s mandate was prompted by a broader request from President Joko Widodo to find ways to improve the bank’s response to the pandemic, according to people familiar with the matter.
Jokowi, as the president is known, had discussions with officials including Coordinating Minister for Economic Affairs Airlangga Hartarto, Finance Minister Sri Mulyani Indrawati and Head of National Development Planning Agency Suharso Monoarfa to suggest ways to improve coordination between the government and the central bank, said the people, who asked not to be named as the talks are private.
The president didn’t give specific instructions on what changes should be made, the people said. Monoarfa worked with a panel of experts at parliament to propose revisions to the 1999 Central Bank Act, they said.
The recommendations from the panel, which were made public earlier this month, included widening Bank Indonesia’s mandate beyond the current inflation-targeting focus to include supporting economic growth and employment, and adding government ministers onto the committee that sets interest rates.
Jokowi and Indrawati have previously affirmed the central bank’s independence, without specifically commenting on the proposals in the draft bill. Hartarto has said he doesn’t support having ministers play a role in monetary policy.
A representative for the president referred questions to the Financial System Stability Committee led by the finance minister. Representatives for the finance ministry, the central bank and the national planning agency declined to comment on the matter, while a representative for the economy ministry didn’t immediately respond to requests for comment.
Government revenue has plunged alongside a slump in the economy as the nation went into lockdown to curb the spread of the coronavirus pandemic. The government this week slashed its growth forecast for the year, predicting the first annual contraction since the Asian financial crisis more than two decades ago.
Bank Indonesia has already taken the unprecedented move of directly buying government bonds to help fund stimulus measures -- a program dubbed “burden sharing.” It has purchased more than 180 trillion rupiah ($12 billion) of sovereign debt from the primary market as of Sept. 24.
Central bank Governor Perry Warjiyo has defended the bank’s independence and said the monetary authority is already working well with the government. “Bank Indonesia has adopted a policy mix that’s almost entirely directed toward synergies and coordination with the government to support economic growth, in order for the economy to recover from the effects of Covid-19,” he said during the interest-rate decision briefing on Sept. 17.
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