Indonesia May Seek Central Bank’s Help on Budget Until 2022
Indonesia May Seek Central Bank’s Help on Budget Until 2022
(Bloomberg) -- Indonesia may continue to seek the central bank’s help in financing its budget deficit through 2022 if it’s needed, according to President Joko Widodo.
If economic growth can reach its 2021 target of 4.5%-5.5% then the government won’t need to rely on the so-called “burden sharing” program in 2022, Jokowi, as the president is commonly known, told a group of reporters from foreign media Tuesday at his palace in Bogor, near Jakarta.
The law allows the government to turn to Bank Indonesia to finance the deficit, including through direct bond purchases by the central bank, he said.
Southeast Asia’s largest economy is experiencing its worst crisis in more than two decades as restrictions on movement to fight the pandemic and a plunge in global demand have wreaked havoc on households and businesses. With government revenue falling, Jokowi said last month he intends to ask the central bank to help meet the budget deficit next year.
Bank Indonesia is also facing a draft bill that proposes sweeping changes including setting up a new monetary board led by the finance minister and expanding the bank’s mandate to support economic growth and jobs. The proposals have raised concerns among investors as they will dilute central bank independence in setting monetary policy.
Bank Independence
Jokowi maintained that the central bank will remain independent, adding that he hasn’t considered whether to issue a law in lieu, known as Perppu, which would push through the proposed changes sooner, he said on Tuesday.
The central bank’s current mandate is to manage the value of the currency through inflation and the exchange rate. Interest rates are currently determined by a board of governors, comprising six members, who meet every month. The draft bill proposes including one or more economy ministers and the finance minister onto this board with speaking and voting rights.
Here are more issues Jokowi discussed in the nearly two-hour long session:
- He expects the coronavirus outbreak in Indonesia to reach its peak in September before flattening out in October as local intervention measures seem to be taking effect, while the recent surge in cases was due to increased testing
- He said it’s “not appropriate” to discuss plans for the new capital during the pandemic; “But if you really want the answer then it is going ahead as intended,” he added
- Jokowi sees economic growth at -3% to 0.5% in the third quarter
- Bali, Indonesia’s most popular tourist destination, is likely to remain closed to foreign tourists until November or December; “We are not in a rush,” he said
- He expects to conclude discussions on the omnibus bill this month
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