Bloomberg
Djokovi Supports Central Bank’s Mandate to Promote Indonesia’s Economic Growth
(Bloomberg) – President Joko Widodo supports a push to expand Bank Indonesia’s mandate to include economic support, providing public support for a legislative move that some analysts believe threatens the central bank’s independence. Bank Indonesia should not just manage the currency, but should also support robust economic growth and job creation, Djokovi said, as president, on Wednesday in an interview in Jakarta. A year later, with Indonesia battling its first recession in two decades, the economy is set to grow as much as 7% in the second quarter from a year earlier, he added. “Of course, I support Bank Indonesia to add growth and jobs. creation according to its mandate, ”he said during a discussion at the presidential palace, where anti-virus measures included masks, face masks and transparent screens on the table. He added: “Bank Indonesia will remain independent.” The Jakarta Composite stock index rose 0.4% on Thursday, continuing its 0.6% gain on Wednesday. The rupee fell 0.5%, reversing gains for three straight days. The president’s comments will be scrutinized by global investors, who were shocked last year by a similar attempt to tighten government control over the central bank. Any opposition could exacerbate pressure on the rupee and government bonds, which have been hit hard in recent months by a sell-off in emerging markets. Discussions on financial sector reform should continue to ensure a quick response from all authorities, including central ones. Djokovi said that during the crisis, discussions did not come to the point of whether there should be a supervisory board to oversee the central bank and the Financial Services Authority, known as the OJK, he added. Independent Goal “Adding growth and job creation in line with the BI mandate is unlikely to be a problem for the market as long as their ability to set goals on their own remains,” said Evgenia Viktorino, Head of Asia Strategy at Skandinaviska Enskilda Banken AB in Singapore. revisiting the burden-sharing arrangements that have emerged between governments and central banks in the face of the pandemic. New Zealand and Brazil have ordered monetary authorities to expand their powers, while Turkey fired its monetary policy chief over interest rate disagreements. The government’s empowerment of the central bank does not necessarily mean a threat to its independence, said Hong Guoh, the bank’s chief executive. Asian Study by Australian and New Zealand Banking Group Ltd. in Singapore. “Even if the Bank of Indonesia were officially mandated to support economic growth, I doubt it would significantly change the way they currently conduct monetary policy,” he said. “The bank has made it clear that maintaining a stable rupee and keeping inflation low provides the best conditions for economic growth.” Others foresee difficulties if the bank’s mandate is expanded. “Markets will be concerned that Bank Indonesia will have to displace target pillars and tolerate higher inflation and weaker rupee to support growth and employment,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. “This can backfire and lead to more volatility and unpredictability in politics, especially during a crisis.” Aggressive stimulus Indonesia was able to limit the economic impact of the largest coronavirus outbreak in Southeast Asia thanks to aggressive financial and monetary stimulus. Gross domestic product contracted 2.1% in 2020, Indonesia’s first annual contraction since the Asian financial crisis, but it was a shallower decline than what most countries in the region experienced. GDP is likely to contract by 0.5% in the first three months of last year. Djokovi said there has been a rise in prices this quarter. In addition to expanding the powers of the monetary authority, the president is pushing for financial sector reform that supports better coordination between Bank Indonesia, OJK and the Deposit Insurance Agency to respond more quickly during the crisis. The reform should also prepare the country to regulate the digital economy, he added. According to an economist at Nomura Holdings Inc. in Oyben Paracuelles’ Singapore, India may find it difficult to convince investors that central bank autonomy will be protected. The proposed changes to the bank’s mandate come at a time when the government is still counting on the Bank of Indonesia to buy up a significant amount of debt in the face of waning market appetite. “It’s better to plan these reforms when things go wrong. is more normal and the government will have more time to focus on discussing these issues in detail, ”Paracuelles said. The vaccination program is a priority in the mind of the president. Indonesia has vaccinated about 9.2 million people so far, most in Southeast Asia, helping to contain new infections from record levels in January. The government can expect a slowdown in the program over the next few months as supplies are cut due to vaccine nationalism. before that happens in July, when the country should receive up to 80 million doses a month, according to Djokovi. This increase in supply will lead to a sharp decrease in the number of cases – a boon for consumer sentiment. “Manufacturing, factories and industries are already operational,” he said. “What hasn’t gone up dramatically or returned to normal is consumption.” (Updates adding Covid-19 stats to the penultimate paragraph.) To learn more about such articles, visit our website bloomberg.com. Subscribe now to stay ahead. from the most trusted source of business news. © 2021 Bloomberg LP
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