Still needed: Traffic in front of the BI headquarters in Jakarta. Introduced as a crisis response in 2020, the burden-sharing scheme remains in place, long after the Covid-19 pandemic has ended. — Bloomberg
JAKARTA: The central bank has announced a continuation of its burden-sharing scheme with the government and has purchased trillions of rupiah worth of government bonds this year, but an economist has questioned the legal basis for continuing a policy initially intended as a crisis response.
Speaking at an online meeting before Committee IV of the Regional Representatives Council on Tuesday, Bank Indonesia (BI) governor Perry Warjiyo revealed that BI has purchased 198 trillion rupiah worth of government bonds so far this year, including 12 trillion rupiah since Aug 19.
“Some of the funds from these bonds are for financing community economy programmes under the Asta Cita (agenda) like people’s housing and the Red and White village cooperatives,” said Perry, referring to President Prabowo Subianto’s vision for political and economic development.
“Burden sharing, or sharing of the interest burden, will reduce the financing burden for community economy programmes under Asta Cita,” he added.
The burden-sharing scheme, which enlists the central bank in shouldering the cost of financing the state budget, was introduced during the coronavirus pandemic in 2020.
Under the scheme, BI can buy government bonds in the primary or secondary market but returns all or part of the interest it earns on the coupon.
The scheme was essentially a lifeline thrown to the state during the pandemic to allow for a selling spree as the government strove to keep economic activity going while the central bank was focused on stabilising the rupiah’s exchange value.
Introduced as a crisis response in 2020, the scheme remains in place today, long after the pandemic has ended.
Perry said in 2020 that the central bank’s capital was strong enough to support the measure.
Speaking at the same Tuesday meeting, Finance Minister Sri Mulyani Indrawati said the scheme allowed BI not just to get involved in the economy through monetary policy but also directly to push economic growth, noting that BI’s role was “not just to maintain stability but also to push growth, while remaining proportional. But Bank Indonesia still has independence.”
Economists viewed the burden-sharing policy as a tool to be used only in times of crisis or force majeure, such as the pandemic.
Institute for Development of Economics and Finance (Indef) economist Rizal Taufikurahman said no urgent pressure or force majeure existed today to invoke the burden-sharing scheme.
“Burden sharing in terms of buying government bonds in the primary or secondary market is only legal when the state is in a crisis,” Rizal was quoted as saying by Kontan.
An article in the Financial Sector Development and Strengthening (PPSK) Law states that BI can only buy government bonds in the primary market if the president declares that the nation is in a crisis, based on a recommendation from the Financial System Stability Committee.
Some 50 trillion rupiah of the bonds BI purchased this year were obtained in the primary market, Perry explained in August.
“Outside a crisis situation, if burden sharing is interpreted as direct state budget financing, then it could clash with BI’s independence as mandated under the BI Law,” said Rizal, noting that such a scheme could nurture a perception of the central bank’s fiscal dominance, which in turn would erode market trust. — The Jakarta Post/ANN
