Indonesia opposes monetary board proposal for central bank

A senior minister said, Indonesia’s government is opposed to a proposal by lawmakers to set up a monetary board that would dilute the authority of the central bank, while at the same time counting on Bank Indonesia to continue financing the fiscal deficit into next year.

Airlangga Hartarto, coordinating minister for economic affairs told reporters late Thursday that the government hasn’t even discussed the proposal for changes to the central bank.​

A draft bill prepared by a panel of experts and due to be discussed by lawmakers proposed sweeping changes to the 1999 Central Bank Act, including widening Bank Indonesia’s mandate to include supporting economic growth and jobs creating a new monetary council led by the finance minister to coordinate policy with the government; and adding ministers to the bank’s interest rate-setting board.

Hartarto said the government is seeking changes to financial sector regulations and plans to propose a law in lieu, which can bypass the parliamentary process if approved by the president.

The minister said, the point of the financial system reform meant by the government is to avoid delayed policymaking as before, especially during a crisis situation like this. Dito Ganinduto, a treasurer for Golkar political party and head of the parliamentary committee that oversees the economy and financial sector said his party along with several in the coalition that governs parliament agreed to drop the discussion of the draft bill to revise the central bank law, and are waiting for the government’s financial sector proposals.

The rupiah rose as much as 0.5% before erasing gains to trade 0.1% lower at 14,793 against the dollar in Asia trading Friday.

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore said, news that the Indonesian government is not in favor of the recommendations provided some relief, with the rupiah gaining in early trading. But for investor concerns to be completely allayed, they would want to ensure the contentious recommendations are removed from any further draft bills.

Hartarto said the government wants the central bank to continue its burden sharing program next year to help finance social protection spending implying the bank will continue purchasing sovereign bonds in 2021. That’s despite Bank Indonesia insisting as recently as Wednesday that the program agreed this year was a one off policy.