JAKARTA: Granted independence after the 1997 Asian financial crisis, Indonesia’s central bank remains one of the few institutions to retain autonomy since Prabowo Subianto became president two years ago.
Now it looks set to fall more directly under his sway.
The shock resignation of Perry Warjiyo as Bank Indonesia (BI) governor last week came after a trusted Prabowo confidant reached out and asked him to step down, according to more than half a dozen people familiar with the situation, who requested anonymity to speak freely for this account.
Tensions had been building, with personality and policy differences straining the relationship, the people said.
While no final decision has been made, insiders see senior deputy governor Destry Damayanti – now serving in a caretaker role – as someone who checks all the boxes.
She’s considered a good communicator and consensus builder who is well respected within the central bank, the people noted.
Speaking in Central Java last Thursday at an event that included Damayanti, Prabowo hinted at the possibility the 62-year-old economist takes the role.
“Ibu Destry – she is the acting governor,” he said, using a respectful Indonesian title for women.
“What do we think? Okay? I’ll leave it to Parliament.”
Prabowo can either nominate someone to finish the remaining two years of Warjiyo’s term, or appoint someone to a fresh five-year term. Parliament, which is dominated by the president’s allies, must then sign off.
“What’s feared is a change in the rules of the game,” said Dipo Satria Ramli, an economist at the Jakarta-based Centre of Reform on Economics Indonesia.
“If the government fails to instil confidence or demonstrate credibility regarding this new process, I believe it will erode market confidence, and ultimately, the rupiah’s value.”
Investors have grown increasingly concerned with Prabowo’s erratic policymaking, which has seen him increase state control over the economy.
Since he took power in October 2024, the rupiah has fallen 14% against the dollar, the biggest drop among emerging economies in Asia.
In that time, the 74-year-old former military man has upended conventions, from clawing back natural resources to clamping down on tycoons.
He’s created a new sovereign wealth fund in Danantara that he’s used to help fund his economic agenda and established an entity to oversee and centralise exports of selected strategic commodities, like coal, palm oil and ferro-alloys.
Under his tenure, BI has come under intense pressure to align with his broader goals, which include having an economy that’s growing at at least 8%.
Prabowo’s nephew, Thomas Djiwandono, was installed as a deputy governor earlier this year.
Meanwhile, BI declined to comment, including on questions for Damayanti and Djiwandono.
Warjiyo also didn’t respond to a request for comment.
The Government Communication Agency responded by saying the government doesn’t comment on speculation, adding that the “independence of BI is guaranteed by law”.
“At the same time, constructive coordination between an independent central bank and the government remains an essential part of sound macroeconomic governance,” it said in a statement.
“Investors, businesses and the public can remain confident Indonesia’s economic institutions continue to function effectively, with policy continuity and macroeconomic stability maintained.”
Damayanti, a Cornell graduate, is also a person the president finds easier to deal with than Warjiyo.
Since Prabowo took office, there’s been a personality and ideological mismatch between himself and Warjiyo that has strained their relationship.
Prabowo wants aggressive growth, while Warjiyo remained focused on preserving monetary and financial stability.
Prabowo wants the central bank to be aligned with his policy objectives, but Warjiyo, although he tried to accommodate the president’s demands, wanted to stick within BI’s legal framework that upholds independence.
They didn’t have chemistry, nor did they agree on issues like how to put a floor under the rupiah’s weakness or how to inject liquidity, the people said.
In several instances, Prabowo’s nephew Djiwandono had to act as a bridge between the two.
Deteriorating sentiment toward Indonesia had fuelled sustained capital outflows and kept the rupiah under pressure, prompting Warjiyo to deploy a series of defensive measures that at times put the central bank at odds with the government.
The measures were intended to draw foreign capital back into Indonesian assets and stabilise the currency, but they also pushed up the government’s borrowing costs.
Whoever takes over will inherit the same bind that constrained Warjiyo.
Easing too quickly could revive capital outflows and worsen the rupiah’s weakness, while keeping policy tight would continue to weigh on growth and government financing costs.
The next governor may find that they have less political room to prioritise stability when those objectives collide. — Bloomberg
