Role of Indonesia’s Central Bank Must Be Strengthened to Support Growth Ambitions

Strengthening Indonesia’s Central Bank to Support Economic Growth

The role of Indonesia’s central bank, Bank Indonesia (BI), must be strengthened to help support the government’s economic growth target of 8% by 2029, according to a lawmaker heading a parliamentary committee overseeing the financial sector.

Government’s Economic Growth Target

Indonesia’s economic growth has hovered at around 5% in the past few years, with the government aiming to increase it to 8% by 2029. To achieve this target, the government is relying on a combination of fiscal and monetary policies.

Strengthening the Central Bank’s Role

Mukhamad Misbakhun, the chairman of the parliamentary committee on the financial sector, believes that strengthening the roles of the finance ministry and Bank Indonesia (BI) will be crucial in achieving the government’s target. "If our economic growth is driven by two engines of fiscal and monetary policy, this will be a strong national combination going forward," he said at a capital markets forum in Jakarta.

Discussion Ongoing

Misbakhun did not elaborate on how the central bank’s role could be enhanced, but said discussions were still ongoing and that he had met with BI officials the previous night. He also emphasized that while the central bank is an independent institution, it must not be independent in its purpose, suggesting that its role should be aligned with the government’s economic goals.

Financial Sector Law Revision

The government is currently revising the 2023 Development and Strengthening of the Financial Sector Law, which was ordered by the Constitutional Court to review matters related to the independence of the state deposit insurer agency. There are concerns that lawmakers might also reevaluate the central bank’s role, although BI’s Governor Perry Warjiyo has acknowledged that no changes are expected.

Central Bank’s Mandate

BI’s mandate is currently to support sustainable economic growth, maintain the stability of the rupiah currency, and control prices.

Conclusion

The Indonesian government’s efforts to strengthen the central bank’s role are crucial in achieving its economic growth target of 8% by 2029. With the current economic growth rate hovering at around 5%, the government is relying on a combination of fiscal and monetary policies to drive growth. The revision of the Financial Sector Law and the potential reevaluation of the central bank’s role will be closely watched by investors and experts, and will have a significant impact on the country’s economic prospects.

FAQs

Q: What is Indonesia’s current economic growth rate?
A: Indonesia’s economic growth rate has hovered at around 5% in the past few years.

Q: What is the government’s economic growth target?
A: The government aims to increase the economic growth rate to 8% by 2029.

Q: How will the government achieve its economic growth target?
A: The government will rely on a combination of fiscal and monetary policies to drive growth.

Q: What is the central bank’s current mandate?
A: The central bank’s mandate is to support sustainable economic growth, maintain the stability of the rupiah currency, and control prices.