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Jokowi supports Central Bank mandate to help Indonesia’s growth

(Bloomberg) – President Joko Widodo is supporting an impulse to expand the Bank of Indonesia’s mandate to include strengthening the economy, launching its public support for a legislative measure that some analysts see as risking central bank independence. currency, but it should also 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 battled its first recession in two decades, the economy is expected to grow by up to 7% in the second quarter compared to the previous year, he added. “Of course, I support Banco Indonesia to add growth and creation jobs to its mandate,” he said in a discussion at the presidential palace, where anti-virus measures included masks, face shields and transparent screens on the table. He added: “Bank Indonesia will remain independent.” The Jakarta Composite Index benchmark on Thursday rose to 0.4%, extending the 0.6% advance on Wednesday. The rupee fell 0.5%, reversing three consecutive days of gains. The president’s comments will be analyzed with precision by global investors, who last year were shaken by a similar attempt to increase government supervision over the central bank. Any setback could worsen the pressure on the rupee and government bonds, which in recent months have been hit by a liquidation of emerging market assets. The deliberations must continue on the reform of the financial sector to ensure a rapid response from all authorities, including the central bank, in times of crisis, said Jokowi. The discussion has not yet reached the question of whether there should be a supervisory board to oversee the central bank and the Financial Services Authority, known as OJK, he added. Independent goal “Increasing growth and job creation for the BI mandate is unlikely to be a problem for the market, as long as its ability to set its goals independently is maintained,” said Eugenia Victorino, Head of Strategy for Asia from Skandinaviska Enskilda Banken AB in Singapore. review the burden-sharing agreements that emerged between governments and central banks in the midst of the pandemic. New Zealand and Brazil have asked the monetary authorities to expand their mandates, while Turkey has sacked its head of monetary policy due to interest rate differences. Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “Even if Bank Indonesia were formally charged with supporting economic growth, I doubt that it would materially change the way they currently conduct monetary policy,” he said. “The bank made it clear that maintaining a stable rupee and keeping inflation low provides the best environment for economic growth.” Others anticipate difficulties if the bank’s mandate is extended. tolerate higher inflation and a weaker rupee to support growth and jobs, ”said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte. in Singapore. “It can backfire and result in increased volatility and unpredictable policies, especially in times of crisis.” Aggressive stimulus Indonesia was able to limit the economic consequences of the worst coronavirus outbreak in Southeast Asia thanks to aggressive fiscal and monetary stimuli. Gross domestic product shrank 2.1% in 2020, Indonesia’s first annual contraction since the Asian financial crisis, but it was a more shallow drop than that of most countries in the region. GDP is expected to contract 0.5% 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 supports better coordination between Bank Indonesia, the OJK and the Deposit Insurance for faster response in times of crisis. The reform should also prepare the country to regulate the digital economy, he added. Vaccine PriorityIndonesia may find it difficult to convince investors that central bank autonomy 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 counting on Bank Indonesia to buy a significant amount of debt in the face of reduced market appetite. “The best way to time these reforms is when things are much more normal and the government has more time to focus on discussing these issues in detail,” said Paracuelles. The vaccine program has priority in the president’s mind. Indonesia has vaccinated about 9.2 million people so far, mostly in Southeast Asia, helping to control new infections from their record levels in January. The government can expect the program to decline in the coming months as supply declines due to nationalism of the vaccine elsewhere, before increasing in July, when the country is expected to receive up to 80 million doses a month, said Jokowi. This increase in supply will cause cases to drop dramatically – a boon to consumer sentiment. “Manufacturing, factories, industries are already working,” he said. “What has not increased dramatically and returned to normal is consumption.” (Updates to add Covid-19 statistics from the third to the last paragraph.) For more articles like this, visit us at bloomberg.comSubscribe now to stay on top with the most trusted business news source. © 2021 Bloomberg LP

Paula Fonseca