Indonesia wants central bank to share more of stimulus burden

JAKARTA • Indonesia’s government is calling on the nation’s central bank to share a greater burden in responding to the economic hit from the Covid-19 pandemic, Finance Minister Sri Mulyani Indrawati (picture) said.

“I’m still discussing with the central bank about the kind of instrument that would allow Bank Indonesia (BI) to share the burden,” Indrawati told the Bloomberg Invest Summit yesterday. “There is really a very fine balance between BI and myself trying to establish how we are going to manage this very shocking effect from Covid-19.”

The pandemic has battered Indonesia’s economy, spurring policymakers into action with almost US$50 billion (RM215 billion) in fiscal stimulus, interest-rate cuts and bond purchases. President Joko Widodo has said the pandemic is having a bigger impact on the nation than the Asian financial crisis more than two decades ago.

BI is already taking a more aggressive role in providing stimulus to the economy, buying sovereign bonds directly from the government to help it meet a fund-raising goal of more than US$100 billion.

The finance minister yesterday said that an emergency law passed in response to the virus had allowed the central bank to finance the deficit through the primary bond market.

“But we also see that the market sometimes is very volatile so we are discussing with BI how we are going to share the burden in a still credible way that allows the market mechanism to still continue to function, but at the same time allow the government of Indonesia, and in this case the budget, to have a certain burden to be shared by BI,” she said.

“We have not yet decided what kind of instrument we’re going to use,” she said, downplaying the notion of introducing a zero-coupon bond.

There is a need to broaden the scope of the bank’s focus beyond only inflation and stabilisation of the rupiah, she said. “This is really a constraint for BI to actually allow themselves to shoulder the burden,” the minister said. — Bloomberg