BI to shift monetary policy to IT system
BI to shift monetary policy to IT system
JAKARTA (JP): Bank Indonesia gradually plans to shift its
current multitarget monetary policy to a single inflation target
policy, according to central bank deputy governor Achjar Iljas.
Achjar said on Friday Indonesia needed another three years
before its central bank could fully implement the so-called
inflation targeting (IT) system.
"Indonesia needs another two to three years to implement the
IT system. We still have a lot of homework to do," he told
journalists following the closing of a two-day international
seminar on inflation targeting sponsored by the International
Monetary Fund.
Bank Indonesia's current multitarget monetary policy focuses
on the exchange rate and price stability. Achjar said with the IT
system, the central bank's single objective would be price
stability, while exchange rate fluctuations would only be
addressed if they were perceived as a threat to its inflation
target.
"But based on the experience of other nations, there's a
correlation between the adoption of the IT system and exchange
rate stability in the long run," he said.
Achjar said a precondition for implementing the IT system was
a credible independent central bank which could not be forced to
plug the government's fiscal deficit.
He said Law No. 23/1999 on the independence of Bank Indonesia
provided the legitimacy for the adoption of the IT system as the
central bank's monetary policy framework.
But Achjar said that in the case of Indonesia, there were
several issues which still had to be settled, particularly the
political will and commitment of the government, the legislature
and the public.
"Looking forward, we (Bank Indonesia) have to move from a
legal independency to an actual (operational) independency," he
said.
Other issues which also must first be addressed, according to
Achjar, include the weak banking system, high fiscal deficit,
slow progress in resolving the country's overseas debts, the
volatility of the rupiah and weak coordination between the
government and the central bank in achieving inflation targets.
"But so far, the experience of other countries which have
adopted the IT system shows quite a high degree of success in
achieving price stability," he said.
The IT system was first developed by New Zealand in 1990. This
monetary policy framework has now been adopted by a number of
developed and developing nations, including England, Canada,
Australia, Spain, Sweden, Finland, Israel, Brazil, Chile, South
Africa, Poland, South Korea and Thailand.
The two-day seminar was attended by domestic and foreign
experts, including representatives of foreign central banks and
institutions.
Achjar said Bank Indonesia had begun taking steps toward the
implementation of the IT system, including the regular
publication of its monetary targets and the results of its board
of governors meetings. (rei)