Indonesia’s new finance laws expand central bank’s mandate

JAKARTA, Dec 15 (Reuters) – Indonesia’s parliament on Thursday voted to approve financial legislation that widens the central bank’s mandate to include supporting sustainable economic growth and formalise its debt monetisation operations.

Called the “Development and Strengthening of Financial Sector” bill, the new rules are also seen opening the door for ex-politicians to head Bank Indonesia (BI), raising concerns about its independence.

Running to more than 500 pages, lawmakers say the bill intends to update regulations to address challenges in the digital era, improve financial sector efficiency and promote financial inclusion.

Speaking after the vote, Finance Minister Sri Mulyani Indrawati told lawmakers the new law replaces old regulations, including some that had been in place for 30 years.

The new law explicitly bars members of political parties from running for BI’s board, including becoming governor.

However, politicians can be nominated for BI’s top jobs after resigning from their party, sources involved in the deliberation said.

Some economists believe allowing former politicians rather than technocrats to head BI could threaten its independence as party ties would remain strong while there would also be questions about their expertise and suitability.

The legislation underlines that the central bank remains an independent agency, but it widens BI’s mandate to also include maintaining financial system stability in order to support sustainable economic growth, on top of the current sole mandate of keeping the rupiah’s value stable.

BI has also received permission to buy government bonds in the primary market if the president declares a crisis situation, effectively formalising the bank’s pandemic-era bond buying operations.

This has raised concerns in financial markets about the risk of the government putting pressure on the central bank to pump such support into the economy, particularly given Indonesia’s history of runaway inflation.

The central bank did not respond to a request for comment.

The law also brings in new rules covering banking, insurance, fintech and digital assets. In addition, it seeks to tighten governance of financial regulators, including calling for a new supervision body for the Financial Services Authority (OJK). The law also moves the oversight of cryptocurrency trading to the OJK from a commodity regulator.

Source: https://www.reuters.com/world/asia-pacific/indonesias-new-finance-laws-expand-central-banks-mandate-2022-12-15/?rpc=401&