JAKARTA (Reuters) – Indonesian Finance Minister Sri Mulyani Indrawati said on Friday that Bank Indonesia (BI) would buy government debt at zero yield for this year only and also promised the central bank would remain independent despite fears that its mandate does not change.
Indrawati made the remark following President Joko Widodo’s comment earlier this week that the “burden sharing” program with the central bank could continue into next year.
BI has pledged to buy $28 billion in government bonds while waiving interest payments, as part of a $40 billion fiscal financing deal with the government to tackle the impact of the coronavirus pandemic.
Meanwhile, a panel advising parliament has proposed that the BI’s mandate be broadened to include economic growth and give ministers the right to vote in political meetings, which economists say could disrupt its independence.
Widodo’s comment, along with concerns over proposed changes to the central bank law, sent the rupiah down as low as 1.6% on Wednesday.
Indrawati also told a virtual press conference that the government did not start discussion on the bill initiated by parliament and pledged to maintain BI’s independence.
“The government’s position is very clear that monetary policy must remain credible, effective and independent,” she said. “There needs to be a competent checks and balances mechanism in place.”
Indrawati, however, acknowledged that the government was carrying out a review of the country’s financial stability framework to mitigate risks, including to its banking sector, as the coronavirus outbreak hit the economy, which in the second quarter recorded its first contraction since 1999.
“Indonesia once had a system where banking and monetary authorities were under one roof, as well as a separate system like it is today,” she said.
“Each system has its advantages and disadvantages which need to be studied more carefully in order to strengthen the banking supervision system.”
Reporting by Tabita Diela and Fransiska Nangoy; Editing by Andrew Cawthorne