Indonesia’s Central Bank Revamp Plan Is Throwback to 1950s Model
Indonesia’s Central Bank Revamp Plan Is Throwback to 1950s Model
(Bloomberg) -- A proposal to establish up a council headed by the finance minister to coordinate Indonesian monetary policy is a throwback to a model that existed for more than four decades before the Asian financial crisis, according to Nomura Holdings Inc.
A monetary council to lead Bank Indonesia in its policies was first set up in 1953 and abolished only in the wake of the Asian financial crisis in 1999 to promote central bank independence, Nomura Singapore Ltd. analysts including Euben Paracuelles and Rangga Cipta wrote in a note Tuesday. The new proposal, still in its early stages, looks like a reversal of this objective, they said.
A draft bill prepared by a panel of experts and presented to parliament’s Legislation Committee on Monday proposed setting up a five-member monetary board, led by the finance minister and including government nominees on the panel that sets interest rates. The proposals have spooked some investors, with Moody’s Investors Service saying the proposed changes could could delay the end to a debt monetization program that was supposed to be a one-off this year.
“The fact that it is coming from the parliament, in our view, runs the risk of adding to market concerns that BI’s independence is being undermined at a time when investors are already questioning the burden-sharing scheme between BI and the Ministry of Finance and the risk of debt monetization,” the Nomura analysts wrote.
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