Triyan Pangastuti, Jakarta – The House of Representatives has kicked off deliberation of a bill that would expand the mandate of Bank Indonesia, the country's central bank, and return banking supervision to the monetary authority.
The House's legislative committee, which responsible for drafting any bill initiated by the lawmakers, met on Monday with a panel of experts who presented a first draft bill for a revision to the 1999 law on Bank Indonesia.
The law was passed in the aftermath of the Asian Financial Crisis and has been hailed by many as a keystone in Indonesia's economic turnaround after the crisis. It sets Bank Indonesia's sole goal of maintaining the value of the rupiah relative to the cost of goods and services and foreign currencies, allowing the country's monetary policy to be relatively independent of the government's interference.
The latest draft bill, however, would expand the mandate to include support for economic growth and employment while subjecting Bank Indonesia's policy to the influence of the executive branch.
The bill proposed the establishment of a monetary council, chaired by the finance minister, to plan and establish the monetary policy.
"The monetary council will lead, coordinate and direct monetary policy in line with the government's general policy in the economic sector," according to the expert team's document read at a meeting at the House's legislative body on Monday.
Bank Indonesia's governor and their senior deputy sit on the board alongside the coordinating minister for economic affairs and the chairperson of the Financial Services Authority (OJK) to make up a five-person group that would meet twice a month. Today, Bank Indonesia's board of governors, consisting of six members, meets once a month to set the interest rates.
The bill also seeks to make permanent Bank Indonesia's ability to purchase government bonds in the primary market – first introduced in March as a stop-gap solution for financing the government's deficit during the Covid-19 pandemic. Bank Indonesia could also provide temporary financing to cover the government's revenue shortfall, according to the draft bill.
Ahmad Baidhowi, a deputy chairman of the House's legislative committee, said the lawmakers were looking forward to reining in Bank Indonesia's independence.
"The meaning of [the central bank's] independence must be interpreted in the framework of the Republic of Indonesia. It can't do anything as it please," Ahmad told the CNBC Indonesia news website.
Another critical change in the bill was the return of banking supervision to Bank Indonesia, after having been under OJK's authority since 2012.
The panel of experts proposes banking supervision would return gradually to the central bank and complete no later than December 31, 2023.
Several lawmakers, however, expressed their shock about the proposal. "I am frankly surprised," Ali Taher, a lawmaker from the National Mandate Party (PAN), said at the meeting. "The OJK is flying high now, and we're about to cut off its engine," he said.
Sturman Panjaitan, a lawmaker from the Indonesian Democratic Party of Struggle (PDI-P), said at the meeting that he was not aware of the proposal. He urged the legislative committee to consult academics and practitioners before moving forward with the bill.
Anis Byarwati, a lawmaker from the government opposition Social Justice Party (PKS), agreed with Sturman's assessment. "Is a radical change like this really needed?" Anis said.