Bank Indonesia's Independence Under Scrutiny

The independence of Bank Indonesia (BI) has once again come under sharp scrutiny amid increasingly close coordination of fiscal and monetary policy in facing global economic dynamics. The issue emerged during an Economic Frontline discussion titled ‘The Future of Central Banks in an Era of a Fragmented World’ in Jakarta on Thursday (20/8).

Director of Digital Economy at the Center of Economic and Law Studies (Celios), Nailul Huda, assessed that BI’s current position is in a state of shadow independence. According to him, formally independence still exists, but the central bank’s room for manoeuvre is increasingly influenced by government interests.

‘Bank Indonesia’s independence is the last gate for our economy when our fiscal management is poor,’ said Nailul. He warned of the risk of a repeat of the 1998 crisis if the central bank were to return under full government control, which could weaken rupiah exchange rate stability.

Conversely, Principal Expert at Bakom RI, Fithra Faisal Hastiadi, argued that BI’s independence remains constitutionally protected. He stressed the importance of operational independence, where coordination with the government does not mean eliminating BI’s monetary authority.

‘Being independent does not mean we live in different houses. The house is the same, but there are corridors. They must be in the same rhythm, in harmony within the fiscal and monetary mix,’ explained Fithra. According to him, collaboration is precisely what is needed so that policies do not clash with one another.

Researcher at LPEM FEB UI, Teuku Muhammad Riefky Hasan, added that independence is crucial for keeping inflation in check. He presented data showing that when BI is independent, inflation is usually maintained below 5%, far lower than the pre-independence era when it could exceed 10%.

‘Maintaining central bank independence is cheap; what is expensive is regaining credibility after its independence has been eroded,’ Riefky stressed.

From the market side, President Director of Nawasena Utama Capital, Prayoga Putera Utama, reminded that exchange rate and interest rate stability are key to investor confidence. He also encouraged BI to begin adapting to the complexity of digital assets such as Central Bank Digital Currency (CBDC).

Closing the discussion, Economic Frontline initiator Harryadin Mahardika concluded that despite concerns about intervention, intensive coordination between the government and BI remains an urgent necessity to align fiscal and monetary operations amid global pressures.