High Hopes Pinned on New BI Governor

Finance Minister Agus Martowardojo has been elected as Bank Indonesia’s (BI) new governor by the House of Representatives (DPR)`s Commission XI for the 2013-2018 period. Agus will replace the present official, Darmin Nasution, whose term ends in late May.
As the former president director of state-owned Bank Mandiri, Agus believes that his background as a banker will be helpful for BI as he can offer an insider’s perspective on how banks and the financial system work, as well as to ensure strong coordination between BI and the monetary authority unit, OJK.
National financial market players have high expectations for the leadership of Agus as the new central bank governor, one of which is to keep a stable exchange rate of Rupiah. Pressure on the Rupiah has recently prompted foreign investors to divest their domestic portfolios in stocks and bonds in order to prevent losses.
The three main priorities to be expected from the new central bank governor includes maintaining macroeconomic stability by monitoring inflation, giving a boost to economic growth, and keeping the exchange rate.
“Maintaining stability of the exchange rate is ‘the homework’ for the new central bank governor as the turmoil in the global financial markets is expected to continue,” said an economist of PT Bank Mandiri Tbk, Destry Damayanti.
BI is expected to play a greater role in terms of maintaining monetary stability and keeping inflation in check so that it remains low. If not controlled properly, those two things will greatly disrupt the nation’s macroeconomy.
Inflation remains the key focus at present though controlling it is not a problem that is solely tasked to the BI But the central bank is expected to be more proactive in overcoming it.
Agus has said that his monetary position as BI’s governor would include a monetary policy mix that combine interest rates-related policies and macro-prudential measures, all of which would be applied to manage inflation and stabilize the currency.
He believes that Indonesia’s economy will face serious challenges in the future. “The country would continue to heavily depend on foreign flows to finance its current account deficit, with BI tasked to maintain a stable economic and financial environment to avoid any unexpected capital reversals,” he said.
On the banking sector, Agus argued that reciprocity was “important” to support the expansion of local banks overseas, stressing the need for Indonesia to protect its banking industry.
He supported the clause in the Banking Bill, which obliges all foreign banks operating here to become legal entities (PT), but rejected lawmakers’ suggestions to limit the foreign ownership of banks to a maximum 40 percent, from the current 99 percent.
All related parties have the same expectation for Agus as the new central bank governor, which is to strengthen Indonesia’s economy for the future.

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