Wider Indonesian central bank mandate proposed

  • Banking
  • Wednesday, 16 Sep 2020

More clout: Bank Indonesia’s logo is seen at its headquarters in Jakarta. There have been suggestions that the central bank take on the task of overseeing economic growth on top of managing the value of the rupiah. — Reuters

JAKARTA: An Indonesian parliamentary committee overseeing the drafting of a central bank law amendment yesterday heard recommendations from experts who called for the expansion of Bank Indonesia’s (BI) mandate, but insisted it must remain independent.

Anggito Abimanyu, a former finance ministry official who runs Indonesia’s multi-billion dollar haj fund, Piter Abdullah, an economist and former BI employee, and Islamic finance academic Abdul Qoyum suggested BI take on the task of overseeing economic growth on top of managing the value of the rupiah.

They made the comments in the legislative body’s (Baleg) first hearing for the amendment after receiving recommendations from a panel of internal experts on Aug 31.

Analysts are worried the panel’s recommendations, including giving ministers voting rights in monetary policy reviews and allowing BI to fund fiscal deficits, could undermine BI’s independence and delay an exit from the Covid-19 pandemic-led debt monetisation.

Those concerns have knocked the rupiah, even as government officials vowed to keep BI independent.

Anggito, who said he was involved in the 2004 amendment for the BI law, praised BI’s current institutional strength, but noted that many central banks elsewhere were also pursuing macro-economic policy objectives.

“As in many other countries, BI can be transformed to become a central bank that remains independent but (works) in synergy with the government to support economic growth and employment, ” he said.

Both Anggito and Qoyum supported allowing BI to buy bonds in the primary market during emergency situations, something BI has only done in response to the pandemic.

However, Piter cautioned against amending the law to tackle short-term problems arising from the current health crisis.

He said any amendment must be done with long-term focus.

During the hearing, some Baleg members expressed support for BI remaining independent, though coordinating more fully with the government.

Achmad Baidowi, deputy head of Baleg, said the new recommendations might be integrated into the bill that lawmakers are drafting.

Baleg plans to bring the draft for a parliamentary vote before Oct 9. If approved, the bill will be proposed to the government.

At a policy meeting later this week, BI is expected to hold its benchmark interest rate unchanged due to renewed pressure on the rupiah. — Reuters

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