People wearing protective face masks cross the street amid the coronavirus disease (Covid-19) outbreak in Jakarta, Indonesia.(Reuters)
People wearing protective face masks cross the street amid the coronavirus disease (Covid-19) outbreak in Jakarta, Indonesia.(Reuters)

Indonesia’s new bill seeks to expand central bank mandate, formalise bond purchase

The new bill, drafted by the government and parliament’s financial committee, calls for pursuing sustainable economic growth and employment to be added to Bank Indonesia (BI)’s tasks.
By Reuters | Posted by Mallika Soni | Jakarta
PUBLISHED ON NOV 27, 2020 02:58 PM IST

The Indonesian central bank’s mandate is being expanded to include economic growth and employment, according to a bill awaiting parliamentary debate, which also includes proposals to overhaul banking supervision.

The draft, reviewed by Reuters, is separate to a plan by parliament’s legislative committee (Baleg) to revise the 1999 Bank Indonesia (BI) Act, a move that analysts worry could undermine BI’s independence and potentially prolong the pandemic-led debt monetisation.

The new bill, drafted by the government and parliament’s financial committee, calls for pursuing sustainable economic growth and employment to be added to BI’s tasks, on top of its current mandate of price stability, according to a copy of the bill and academic papers backing the bill.

It also proposes to permanently allow BI to purchase government bonds in the primary market to prevent or in the event of a financial crisis, something that the central bank is currently only allowed to do in response to the coronavirus pandemic.

Other measures BI is given authority of under the new crisis protocols include regulating foreign exchange repatriation and conversion for Indonesian residents and lending to private companies through repurchase of their government bonds via commercial banks.

The bill also proposes that BI “must consider the government’s general economic policy” when deciding monetary measures.

Read more | Indonesia slips to first recession in over two decades amid Covid crisis

On banking supervision, the bill sets up a new forum between regulators such as BI and the Financial Services Authority to allow for joint monitoring and details steps to take when a bank fails.

BI’s spokesman did not respond to request for comment and a finance ministry spokeswoman declined to comment. Baleg, which sets parliament’s legislative agenda, will decide whether to prioritise the new proposals over its own revision to BI laws in coming days, deputy chairman Achmad Baidowi told Reuters.

In September, BI Governor Perry Warjiyo said in a parliamentary hearing he had been consulted by the government about a planned bill seeking to widen BI’s mandate. He said in reality BI has already taken into account economic performance when reviewing policy.

BI has this year cut interest rates a total of 125 basis points, pumped some $48 billion into the financial system and relaxed lending rules to lift Southeast Asia’s largest economy out of its first recession in more than two decades.

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