Indonesia to allow former politicians to head central bank, sources say

Indonesia's parliament and government have agreed on a clause in a new financial bill to allow former politicians to stand as central bank governor, three sources familiar with the discussions told Reuters.

Plans by parliament in the last few years to overhaul how the central bank operates have raised market concerns that Bank Indonesia (BI) could lose independence and its policymaking could be at risk from political interference.

Parliament and the government are due to approve a final draft of the bill later on Thursday and a member of the parliament commission overseeing the bill said parliament will hold a plenary session for a final vote on Monday.

The bill will also expand the mandate of BI to support economic growth, on top of managing the value of the rupiah, and allow BI to purchase bonds directly from the government "under certain conditions" set by the president, said one of the sources, who declined to be named as the bill is not public yet.

BI and the parliamentary commissions in charge of the bill did not immediately respond when asked for comment.

BI conducted such bond buying during the Covid-19 pandemic, and the quantitative easing programme is set to end this year.

Alongside running BI, politicians who resign from their party will also be eligible to head the Financial Services Authority and the Deposit Insurance Corporation.

"Politicians have the same rights like others to run for these positions and in terms of competence, they can do it," the source said.

President Joko Widodo has previously pledged BI would remain independent.

Tauhid Ahmad, an economist at the Institute for Development of Economics and Finance, a local think tank, said while currently no specific rule prohibited a politician from standing for a BI post, a "code of ethics" has stopped them from doing so.

Tauhid said even though a BI candidate would now have to stand down from a political party, ties with the party would remain strong.

"There is a threat BI's independence's will be weakened." he said.

Currently, BI has a six-member board of governors, who are recommended by the president and elected by parliament. They can come from any background, but five existing members are career central bankers and one has a long career as an economist.

A panel of experts to parliament's legislation committee had previously recommended that cabinet ministers be given voting rights at BI's monthly monetary policy reviews and to form a Monetary Council to supervise BI, with seats for the finance minister and a minister in the economics sector.

These recommendations, however, were not included in the latest draft, a source said.