Indonesian president pledges central bank to remain independent

BOGOR, Indonesia (Reuters) - Indonesian President Joko Widodo pledged on Tuesday that the country’s central bank would remain independent, a day after a panel of experts advising parliament recommended that government ministers be given voting rights at policy meetings.

FILE PHOTO: Indonesia's President Joko Widodo attends an ASEAN leaders summit with United Nations Secretary-General Antonio Guterres, in Bangkok, Thailand November 3, 2019. REUTERS/Soe Zeya Tun

In proposals that could amount to the biggest shake-up of the monetary authority in two decades, the panel also suggested economic growth and employment be added to Bank Indonesia’s (BI) mandate among other amendments to Indonesia’s central bank law.

Analysts have warned the proposals could raise questions over BI’s independence and Indonesia’s track record of prudent macroeconomic policymaking, although some also said reform was needed to ensure BI could meet new challenges and support Southeast Asia’s biggest economy during the pandemic.

Widodo told a briefing with foreign correspondents that the central bank would remain independent, when asked about the recommendations, adding he had no plans to issue an emergency decree to change BI’s role.

The panel also recommended to parliament BI be allowed to buy government bonds in the primary market and purchase zero-interest bonds under certain economic conditions.

BI is currently allowed to conduct such operations only in response to the coronavirus pandemic.

The central bank has pledged to purchase $28 billion of government bonds, while relinquishing interest payments this year, but officials have stressed the policy would be one-off amid concerns about inflation.

When asked if the so-called “burden-sharing” scheme would continue, Widodo said: “If our economic growth reaches 4.5%-5.5% (next year), maybe not in 2022”.

The president said he would be content even if Indonesia continued to post negative growth by the third quarter as long as it recovered from the 5.32% contraction in the second quarter.

He did not give a growth forecast for 2020, but Finance Minister Sri Mulyani Indrawati has forecast GDP will be within a range of -1.1% to 0.2%.

Writing by Gayatri Suroyo; Editing by Ed Davies