New C. Bank Chief Expected to Maintain Monetary Stability While Being Pro-Growth: Economists

The incoming governor of Bank Indonesia, the country’s central bank, is expected to maintain stability of the macroeconomic and financial systems to support a sustainable economic recovery while also being supportive of economic growth, economists said. (Antara Photo/Muhammad Adimaja)

By : Adinda Normala | on 1:02 PM March 01, 2018
Category : Business, Economy

Jakarta. The incoming governor of Bank Indonesia, the country’s central bank, is expected to maintain stability of the macroeconomic and financial systems to support a sustainable economic recovery while also being supportive of economic growth, economists said.

President Joko "Jokowi" Widodo on Tuesday (28/02) confirmed his nomination of current Bank Indonesia deputy governor Perry Warjiyo to fill the role of the central bank’s governor for the 2018-2023 period, noting his outstanding track record and impressive achievements.

Perry will have to pass a fit and proper test administered by the finance committee of the House of Representatives in April, a month before current Governor Agus Martowardojo completes his term.

Piter Abdullah, a research director at the Jakarta-based Center of Reform on Economy, said Perry's nomination will likely support continued infrastructure development under Jokowi’s direction. Agus has been criticized by some for failing to fully support the president's initiatives.

"Over the last three years, there has been monetary easing but funds collected by banks kept at Bank Indonesia are still high, amounting to around Rp 500 trillions [$35 billion]," Piter told the Jakarta Globe on Saturday.

"Whereas the funds are badly needed for development growth," Piter added.

Under Jokowi’s administration, Southeast Asia’s largest economy has embarked on an ambitious plan to improve infrastructure across the archipelago, commissioning 245 national strategic projects with total investments estimated at $327.2 billion, or around 30 percent of the country's nominal gross domestic product.

Many see a change in leadership at the central bank as a sign that monetary policy will begin to more fully support the government's efforts in boosting economic growth, Piter said.

Indonesia’s economic growth has hovered around 5 percent in recent years, far slower than Jokowi’s 2014 campaign promise to increase growth to 7 percent.

Josua Pardede, an economist at Bank Permata, said Perry has close ties to stakeholders in the market, frequently calling domestic and foreign investors, a routine standard at the bank.

Josau expects however that Bank Indonesia will take into consideration uncertainties in the global economy, including restlessness in financial markets ahead of tightening monetary policies from the US Federal Reserve, the European Central Bank and the Bank of Japan, as well as recently passed tax reforms in the United States.

Such uncertainties have put pressure on the rupiah, which weakened to 13,707 against the US dollar on Wednesday, compared to 13,560 on Tuesday, according to data from Bank Indonesia. The fall is the sharpest so far this year.

The new governor is therefore expected to take a measurable and consistent monetary stance in keeping inflation in check, controlling current account deficits and maintaining rupiah stability.

"Bank Indonesia is also expected to continue strengthening macroprudential policy in order to increase financial system resilience to potential systemic risks," Josua said.

David Sumual of Bank Central Asia said it is important to keep macroeconomic policy prudent because the central bank needs to watch over external risks as "Indonesia is a small country and has an open economy."

"While pushing for the economy, we still need to emphasize stability; there must be a balance. If the condition fits, then we can accelerate, but if the condition suggests otherwise and we are forced, then the car will tumble," David said.

Meanwhile, Bhima Adhinegara, an economist at the Institute for Development of Economics and Finance, said the market views Perry as a prudent policy maker.

“It seems that Bank Indonesia’s policies will remain pretty similar, or have no significant innovation," Bhima said.

Chemistry

Piter and Bhima highlighted "the right chemistry" between the president and Perry's economic mindset, which will further smooth communication between the government and the central bank.

Perry was born in Central Java’s Sukaharjo, a neighboring city to Solo, where Jokowi was born. Both Jokowi and Perry, who are only two years apart, also graduated from Gadjah Mada University in Yogyakarta.

"These things matter as what’s also needed is chemistry, so coordination [between the two] can be better," Piter said.

Sri Mulyani said Perry’s experience at Bank Indonesia and at the International Monetary Fund will help prepare him to fill the highest position at the central bank.

Perry started his career at the central bank in 1984 and had an opportunity to serve as an executive director at the IMF for two years, before taking on the role of deputy governor in 2013.

"He has had so many experiences and chances that ready Perry to be Bank Indonesia's governor, and that is needed [by the country]," Sri Mulyani told reporters on the sidelines of a Bank Indonesia-IMF conference in Jakarta on Tuesday.

The minister also expects a close relationship and understanding with Perry, as they previously served together on a government committee that monitored the global financial crisis in 2008.

Today, that committee has evolved into the Financial System Stability Committee (KSSK), which consists of Bank Indonesia, the Ministry of Finance, the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS), whose main mandate is proactively prevent future financial crises from arising in the country.

 

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