Indonesia Wants Central Bank to Share More of Stimulus Burden
(Bloomberg) -- Follow Bloomberg on LINE messenger for all the business news and analysis you need.
Indonesia’s government is calling on the nation’s central bank to share a greater burden in responding to the economic hit from the Covid-19 pandemic, Finance Minister Sri Mulyani Indrawati said.
“I’m still discussing with the central bank about the kind of instrument that would allow Bank Indonesia to share the burden,” Indrawati told the Bloomberg Invest Summit on Tuesday. “There is really a very fine balance between Bank Indonesia and myself trying to establish how we are going to manage this very shocking effect from Covid-19.”
The pandemic has battered Indonesia’s economy, spurring policy makers into action with almost $50 billion in fiscal stimulus, interest rate cuts and bond purchases. President Joko Widodo has said the pandemic is having a bigger impact on the nation than the Asian financial crisis more than two decades ago.
Bank Indonesia is already taking a more aggressive role in providing stimulus to the economy, buying sovereign bonds directly from the government to help it meet a fund-raising goal of more than $100 billion.
The finance minister on Tuesday said that an emergency law passed in response to the virus had allowed the central bank to finance the deficit through the primary bond market.
“But we also see that the market sometimes is very volatile so we are discussing with Bank Indonesia how we are going to share the burden in a still credible way that allows the market mechanism to still continue to function but at the same time allow the government of Indonesia, and in this case the budget, to have a certain burden to be shared by Bank Indonesia,” she said.
“We have not yet decided what kind of instrument we’re going to use,” she said, downplaying the notion of introducing a zero-coupon bond.
Read: Lawmakers Want Central Bank to Fund Virus Stimulus
There is a need to broaden the scope of the bank’s focus beyond only inflation and stabilization of the rupiah, she said. “This is really a constraint for Bank Indonesia to actually allow themselves to shoulder the burden,” the minister said.
Indrawati also made the following comments in her interaction with Bloomberg Television’s Haslinda Amin on Tuesday:
After an initial sell-off along with other emerging markets, the rupiah has surged more than 16% against the dollar in the past three months to be the best performer in Asia and among global emerging markets.
The rupiah is always affected by “fundamentals” including the nation’s trade balance and current account deficit but it can also get hit hard by sentiment as a result of other dynamics, Indrawati said. The rupiah is now “stable in the equilibrium, which is less affected by this panic and herd behavior and is more supported by the fundamentals,” she said.
The central bank last week cut interest rates and also lowered its growth forecast for this year to a range of 0.9%-1.9%, from 2.3% previously. The government has already warned that the economy could contract under a worst-case scenario.
Indrawati said the impact of Covid-19 is set to linger well beyond this year.
“It’s not really like Indonesia is only preparing for six months,” she said. “The economy is still under very big pressure from Covid-19.”
©2020 Bloomberg L.P.