Indonesia’s Lawmakers Call for Caution Over Central Bank Reform

(Bloomberg) -- Indonesian lawmakers called for caution over proposals to reform the central bank amid investor worries the changes would erode its independence.

Several lawmakers who attended the Thursday meeting raised concerns over how much influence the government should wield over Bank Indonesia and whether there are good enough reasons for seeking to revamp the 1999 Central Bank Act.

“The proposal speaks of independence while mentioning coordination with the government and saying the central bank must support the government’s policies, so what kind of independence is that?” said Arteria Dahlan, a lawmaker in the ruling Indonesian Democratic Party of Struggle, or PDIP.

Indonesia Seeks to Ease Central Bank Worries as Questions Remain

The pushback from lawmakers in the meeting signals that the revamp may not happen as soon or be as extensive as earlier feared by investors.

Concern over changes at Bank Indonesia started after a panel of experts put together a draft bill that proposes widening the bank’s mandate to include supporting economic growth and employment as well as adding ministers to its interest rate-setting board. The latest version of the bill discussed Thursday also added that the government must consult the central bank in setting out bond issuance plans.

Remain Credible

Central bank Governor Perry Warjiyo defended the institution’s independence on Thursday, saying the president and finance minister have made clear that “monetary policy must remain credible, effective and independent.”

Masinton Pasaribu, a member of parliament’s Commission XI that oversees the financial and banking sectors, even questioned who had commissioned the panel of experts to come up with the draft bill.

The lawmakers also called for the need to seek the government’s input on current conditions, to ensure separation of fiscal and monetary policy, and to respect the constitutional basis underlying Bank Indonesia’s standing. They also pointed out that changes to the central bank could spur fears in the financial markets and add further pressure on the rupiah, which is already Asia’s worst performer this year.

“Even if this is still in early stages, we really must be wise as this affects the financial sector that’s very sensitive,” Andreas Eddy Susetyo, a PDI-P lawmaker, said in the meeting.

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