Forged in Crisis, Newest Asian Central Bank Chief Comes Prepared

(Bloomberg) -- Indonesia’s new central bank governor knows a thing or two about crisis management. That’s about to come in handy.

Since joining Bank Indonesia in 1984, Perry Warjiyo has seen the fall of a dictator, the collapse of the financial sector -- more than once -- and the odd market tantrum. In October last year, he sensed a new calamity around the corner, warning that the tightening of U.S. monetary policy meant trouble ahead for Southeast Asia’s largest economy.

Fast forward five months and the rupiah has tanked against the dollar to be among the worst performing currencies in Asia, foreign investors are ditching Indonesian stocks and bonds, while the central bank was last month forced to tap $4 billion of foreign reserves to defend the currency.

“Given his understanding of the global economy and experience in handling financial crises, he is an asset to Indonesia,” said Fauzi Ichsan, chief executive officer of Indonesia’s Deposit Insurance Corp. He is a combination of the traditional Javanese man and an international technocrat.”

As the U.S. presses ahead with its interest-rate hike timetable, 59-year-old Warjiyo -- who has served as deputy governor since 2013 -- is seen as a safe pair of hands in volatile times. He’ll take the reins at Indonesia’s central bank in May as the economy struggles for traction even after eight rate cuts, and as a trade war further threatens its nascent recovery.

Read More: Bank Indonesia’s Incoming Governor Pledges Growth, Stability

His candidature was endorsed by a panel of lawmakers on Wednesday and he will still need the approval of the parliament.

“Maintaining stability and pushing for growth are things that must not be contradicted, but must be synergized,” Warjiyo said at his confirmation hearing. “This is where I play my role and make Bank Indonesia to be pro-stability, but also pro-growth, so that we can develop the national economy and bring prosperity to the people.”

Warjiyo forecast growth of 5.2 percent to 5.3 percent this year, compared with 5.1 percent expansion in 2017.

Policy MixMaster

While the economy is growing below the 7 percent target set by President Joko Widodo, inflation eased to a 14-month low in February. That’s given the central bank room to focus on guarding the currency, which has fallen 2.7 percent since the end of January. Bank Indonesia held its benchmark interest rate for a sixth straight month last week, with its attention firmly on the rupiah instead.

Former finance minister Rizal Ramli says Warjiyo will bring a wealth of experience to the role, needed at a time when the economy is facing significant headwinds.

“Indonesia is quite vulnerable to any major change in global markets,” he said in an interview on Monday. “With the U.S. and new Fed governor Jerome Powell determined to raise rates, that’s going to create further pressure for the rupiah.”

The village schools in Central Java where Warjiyo spent his formative years, amid rice paddy fields and under the shadow of an active volcano, are a far cry from the likes of Tokyo, Geneva and Washington where he would later further his education. Having earned his economics degree at Gadjah Mada University in Yogyakarta in 1982, Warjiyo was later awarded a PhD from Iowa State University in the U.S. in 1991.

Bank Adviser

He was already advising Indonesia’s central bank governor as the Asian financial crisis hit in 1997, and as the ensuing carnage saw the downfall of the Suharto regime the following year after 32 years of authoritarian rule. Having witnessed the fallout, he sharpened his skills with a course on financial crises in emerging markets at the Reserve Bank of Australia in 1999.

Warjiyo later took up a post as an executive director with the International Monetary Fund in Washington between 2007 and 2009, just as the global financial crisis moved like a wrecking ball through economies around the world. He returned to Bank Indonesia in 2009 and was appointed for a five-year term as deputy governor in 2013.

The president, known as Jokowi, will be looking to Warjiyo to help steer the economy through the current turbulence. And with the 2019 presidential election campaign due to kick off in September, he’ll also be hoping Warjiyo can help fire up economic growth.

Warjiyo, who went to the same university as Jokowi, will likely have the president’s ear, according to Ramli.

“He is a nice guy and easy to get along with," he said of Warjiyo. “He will try to find a compromise, a consensus.”

To contact the reporters on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net, Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Thomas Kutty Abraham

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