Bloomberg
Jokowi Supports Central Bank Mandate To Help Indonesia Growth
(Bloomberg) – President Joko Widodo backs an initiative to broaden the Bank of Indonesia’s mandate to include strengthening the economy, giving public support for a legislative move that some analysts see as a risk to the economy. independence of the central bank. currency, but is also expected to support sustainable economic growth and job creation, Jokowi, as the president is known, said Wednesday in an interview in Jakarta. After a year in which Indonesia struggled with its first recession in two decades, the economy is expected to grow by up to 7% in the second quarter compared to a year earlier, he added. creation to his tenure, ”he said during a discussion at the presidential palace, where anti-virus measures included masks, face shields and clear screens on the table. He added: “The Bank of Indonesia will remain independent”. The benchmark Jakarta Composite stock index rose to 0.4% on Thursday, extending a 0.6% lead on Wednesday. The rupee slipped 0.5%, reversing three consecutive days of gains. The president’s comments will be keenly analyzed by global investors, who were rocked last year by a similar attempt to increase government oversight of the central bank. Any pullback could exacerbate pressure on the rupee and government bonds, which have been battered in recent months by a liquidation of emerging market assets. Discussions should continue on financial sector reform to ensure a swift response from all. the authorities, including the central. The discussion did not result in whether there should be a supervisory board to oversee the central bank and the Financial Services Authority, known as the OJK, he added. job creation under BI’s mandate is unlikely to be a problem for the market as long as their ability to independently set their goals is maintained, ”said Eugenia Victorino, Asia Strategy Manager at Skandinaviska Enskilda Banken AB in Singapore. re-examine the burden-sharing agreements that have been made between governments and central banks in the midst of the pandemic. New Zealand and Brazil have called on monetary authorities to expand their mandates, while Turkey fired its monetary policy chief over interest rate disagreements. does not necessarily mean that its independence is threatened, said Khoon Goh, head of the “Even if the Bank of Indonesia was officially charged with supporting economic growth, I doubt that would significantly change the way they currently conduct monetary policy “, did he declare. “The bank has made it clear that maintaining a stable rupee and keeping inflation low provides the best environment for economic growth.” Others foresee difficulties if the bank’s mandate is broadened. “Markets will fear that the Bank of Indonesia will have to shift targets and tolerate higher inflation and a lower rupee to support growth and jobs,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. “This can backfire and lead to greater volatility and unpredictable policies, especially in times of crisis.” Aggressive stimulus Indonesia was able to limit the economic fallout from the worst coronavirus outbreak in Southeast Asia thanks to aggressive fiscal and monetary stimulus measures. Gross domestic product fell 2.1% in 2020 , Indonesia’s first annual contraction since the Asian financial crisis, but it was a less severe slowdown than most countries in the region have experienced. in the first three months of the previous year. In addition to expanding the mandate of the monetary authority, the president is pushing for financial sector reform that promotes better coordination between the Bank of Indonesia, the OJK and the deposit insurance agency for a faster response in times of crisis. The reform should also prepare the country to regulate the digital economy, he added. Vaccine Priority Indonesia may find it difficult to convince investors that The autonomy of the central bank will be protected, according to Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. The proposed changes to the bank’s mandate come at a time when the government is still relying on the Bank of Indonesia to buy back a significant amount of debt in the face of declining market appetite. more normal and the government has more time to focus on discussing these issues in detail, ”Paracuelles said. The immunization program is a priority in the mind of the president. Indonesia has vaccinated nearly 9.2 million people to date, the most in Southeast Asia, helping to curb new infections from their record high in January. The government can expect that the program slows down in the coming months as the supply drops due to vaccine nationalism. elsewhere, before resuming in July when the country is expected to receive up to 80 million doses per month, Jokowi said. This increase in supply will lead to a drastic drop in cases – a boon to consumer sentiment. “Manufacturing, factories and industries are already functioning,” he said. “What has not increased drastically and returned to normal is consumption.” (Updates to add Covid-19 statistics in third to last paragraph.) For more articles like this, please visit us at bloomberg.com with the most trusted source of business news. © 2021 Bloomberg LP
