Indonesia’s parliament submits draft law on wider role for central bank
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INDONESIA’S parliament on Tuesday (Sep 20) formally proposed to the government a bill that will widen the central bank’s mandate to include economic growth, and formalise its bond purchases in the primary market.
The bill, drafted by members of parliament’s finance committee, also proposes removing a 23-year-old rule barring Bank Indonesia’s (BI) top policymakers from joining political parties.
Currently, the central bank’s sole mandate is to maintain the rupiah’s stability, which monetary policymakers say means the bank must keep both the exchange rate and inflation stable.
But lawmakers have been considering revisions to BI’s role since 2020, including at one stage a plan to give government ministers a say in determining monetary policy. The move had spooked financial markets, which feared this could undermine the autonomy of the central bank.
President Joko Widodo has said he wants BI to remain independent; BI’s governor, Perry Warjiyo, has said monetary policymakers already take into account economic growth when deciding their policies.
The latest bill calls for an expansion of BI’s objectives to include maintaining “financial system stability in order to support sustainable economic growth”.
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The legislation also specifies that lawmakers want BI to purchase bonds directly from the government “under certain conditions” under its liquidity management strategy.
BI did this during the pandemic, but not before that, as it was not allowed to buy bonds in the primary market.
The next step is for the government, typically represented by the finance ministry, to discuss the bill with lawmakers. Parliament cannot pass the bill into law without the government’s approval.
Parliamentarians are hoping the bill can pass into law later this year.
Spokespersons for the finance ministry and BI did not immediately respond to a request for comment. REUTERS
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