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Changes to Indonesia central bank law raise fears over independence

A panel of experts issued recommendations this week to revise the 1999 central bank Act to a Parliament panel.

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Indonesia | Central banks

Reuters  |  Jakarta 

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Talks about revising the 1999 law have gained traction amid tough negotiations between the government and BI on a $40-billion financing deal for a Covid-19 package

Indonesia’s Parliament will consider recommendations to overhaul how the central bank operates, raising market fears that Bank (BI) will lose independence and its policymaking could be at risk.

What’s being proposed?

A panel of experts issued recommendations this week to revise the 1999 central bank Act to a Parliament panel.

The recommendations include expanding BI’s mandate to cover economic growth and employment. The panel recommended Cabinet ministers be given voting rights at monthly monetary policy reviews. It also suggested the formation of a Monetary Council to supervise BI — the finance minister and a minister in the economics sector would be part of the council.

Why the changes?

Talks about revising the 1999 law have gained traction amid tough negotiations between the government and BI on a $40-billion financing deal for a Covid-19 package.

What the government said?

President Joko Widodo has pledged BI would remain independent. Finance Minister Sri Mulyani Indrawati said on Friday the government has not yet discussed the Bill but reiterated Widodo’s pledge.

What foreign investors think?

Analysts are worried if BI’s has too much room to print money. Moody’s Investors Service Senior Analyst Anushka Shah warned if the government’s representation in the policymaking panel became too dominant it would put BI at risk of political interference or delay an exit from pandemic-led debt monetisation.

First Published: Sat, September 05 2020. 02:42 IST
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