Indonesia to let former politicians head c. bank, asks BI to support growth

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JAKARTA — Indonesia’s government and a parliamentary committee agreed on Thursday to a financial sector bill that would allow former politicians to stand as central bank governor and for the central bank to support economic growth.

Plans by parliament in the last few years to overhaul how the central bank operates have raised concerns that Bank Indonesia (BI) could lose independence and its policymaking could be at risk from political interference.

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The bill draft seen by Reuters states that a candidate running for the board of the central bank, including the governor, “must not be an administrator and/or a member of a political party at the time of nomination.”

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The bill will also expand the mandate of BI to support economic growth, on top of managing the value of the rupiah , and allow it to buy bonds directly from the government when the president declares crisis situations.

The latest version, however, does not include an earlier recommendation to add job creation as one of its roles. BI had purchased such bonds during the coronavirus pandemic, and the quantitative easing program is set to end this year.

In determining and implementing its monetary policies, BI has to follow the inflation target set by the government in coordination with the central bank.

“Strengthening the role of financial institutions is really important to push for more effective regulations,” Finance Minister Sri Mulyani Indrawati told the parliamentary committee overseeing the bill.

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The bill will be brought to a plenary session next week for a wider vote, said Hendrawan Supratikno, a committee member.

BI did not respond to a request for comment.

“Politicians have the same rights like others to run for these positions and in terms of competence, they can do it,” a source involved in the bill’s deliberation said.

A DILEMMA

President Joko Widodo has previously pledged BI would remain independent, while governor Perry Warjiyo has said the central bank always consider growth in its policymaking.

Tauhid Ahmad, an economist at the Institute for Development of Economics and Finance, a local think tank, said currently no specific rule prohibited a politician from standing for a BI post, but a “code of ethics” has stopped them from doing so.

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Tauhid said even though a BI candidate would now have to stand down from a political party, ties with the party would remain strong. “There is a threat that BI’s independence will be weakened,” he said.

On BI’s role to support growth, Maybank Indonesia economist Myrdal Gunarto said the central bank might face a dilemma between chasing growth and keeping inflation low.

Currently, BI’s board has six members, who are recommended by the president and elected by parliament. They can come from any background, but five existing members are career central bankers and one has a long career as an economist.

A panel of experts to parliament’s legislation committee had previously recommended that cabinet ministers be given voting rights at BI’s monthly monetary policy reviews and to form a Monetary Council to supervise BI, with seats for the finance minister and a minister in the economics sector.

These recommendations, however, were not included in the latest draft.

The new bill also lays the ground for setting up a bullion bank, carbon exchange and digital rupiah, as well as shifting the regulation and supervision of crypto assets to under the Financial Services Authority from the trade ministry. (Reporting by Stefanno Sulaiman and additional reporting by Ananda Teresia and Fransiska Nangoy; Editing by Ed Davies, Jacqueline Wong and Arun Koyyur)