JAKARTA: Indonesia’s parliament on Thursday (Jun 4) passed sweeping legislation that doubles down on Bank Indonesia’s (BI) role to support growth, while empowering lawmakers to make binding recommendations for independent financial regulators and the central bank.
The bill has added to investor concerns about the possibility of political interference in the central bank to ensure compliance with President Prabowo Subianto’s big-growth agenda, as his administration battles challenges on multiple fronts and sticks unswervingly to his target of 8 per cent gross domestic product (GDP) growth by 2029.
The bill, backed a parliament overwhelmingly controlled by Prabowo’s coalition, has not been made public, but some elements were discussed at a hearing on Wednesday, including legislators evaluating independent bodies and making binding recommendations for them.
Those include the central bank, Financial Services Authority and Indonesia Deposit Insurance Corporation.
Also in the bill was a new mechanism for removing members of the central bank’s board of governors, Finance Minister Purbaya Yudhi Sadewa told Wednesday’s hearing, without giving details.
Purbaya has pledged to uphold central bank independence. A spokesperson for Bank Indonesia did not immediately respond to a request for comment on the bill.
CLOSE SCRUTINY ON POLICYMAKING
Its passage comes as investors cool on Indonesia, a G20 economy of US$1.4 trillion, with Moody’s and Fitch this year cutting their credit rating outlooks to negative from stable, citing reduced policymaking credibility and predictability.
Indonesia’s stock market has plunged over 30 per cent year to date and the rupiah has lost more than 7 per cent against the US dollar this year, making it among the worst-performing emerging Asian currencies. It hit a historic low of 18,045 per dollar on Thursday.
Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies think-tank, said the bill could challenge central bank independence and effectively allow politicians to influence independent bodies.
“The most concerning part is on the mechanism to remove members of the central bank’s board of governors … which could be thick with political intent,” Bhima said.
“A governor or an executive that doesn’t align with political pressures could be removed,” he said, adding he had yet to see the new bill.
