Welcoming Bank Indonesia's New Captain

President Prabowo Subianto has submitted two names for Bank Indonesia leadership to the House of Representatives (DPR). Destry Damayanti has been proposed as Governor of Bank Indonesia (BI), and Aida S. Budiman as Senior Deputy Governor.

Destry and Aida are not newcomers to the financial sector. Both have long track records before each became part of Bank Indonesia’s leadership. Now, the leadership baton at BI appears set to be held by the two of them if the DPR approves.

At a time when the world is full of turmoil, it is honestly not easy for the two of them to lead BI going forward. However, both already have initial capital: their long track records are an investment of trust from market participants. And this is not easily fulfilled.

At least this was evident when Perry Warjiyo stepped down as BI Governor; the market did not appear particularly volatile, because BI’s interim leadership was held by Destry and the current team.

President Prabowo’s choice to nominate Destry and Aida is a technocratic choice. This step dispels the notion of BI politicisation and demonstrates a commitment to keeping financial markets conducive. On the other hand, this can certainly be interpreted as respect for BI’s independence.

We do not want to damage BI’s independence, which is a fruit of reform. What we need now is for each party to play its role with clear, measurable financial sector leadership that provides certainty on future policy direction to market participants.

BI’s challenges

BI’s two main mandates are controlling the rupiah exchange rate and controlling inflation. New regulations give it the additional task of contributing to economic growth and developing MSMEs.

But behind that mandate, we honestly do not yet have a policy core guiding the direction of monetary policy. By comparison, China has a policy direction with a tendency to weaken the yuan against the US dollar. Because by weakening the yuan, the prices of their export goods become more competitive in the global market. And the United States is overwhelmed by the flood of Chinese products, so it has had to erect barriers, and a trade war has ensued.

Conversely, in recent years, at least since the Russia-Ukraine war broke out in 2022 accompanied by rising global commodity prices, the United States has tended to face high inflation and a trade deficit. As a result, it has chosen a monetary policy that tends to strengthen the US dollar, as reflected in the US dollar index since 2022.

Reflecting on the policies of China and the United States, we honestly do not yet have a policy narrative to frame the direction of fiscal and monetary policy. This is what needs to be formulated immediately by the Finance Minister and the new BI leadership going forward. What is the national policy core going forward? Will it strengthen commodity export expansion so that it needs support from a limited rupiah weakening policy?

Or will we choose to reduce inflation in the food and energy sectors, which are heavily supported by imports, so that the direction of monetary policy needs to strengthen the rupiah? Or are there other options? This is what needs to be formulated by the Finance Minister and the BI Governor going forward. This orchestration is important, as well as to send a signal to the market about the direction of monetary policy going forward.

I believe that given the long-standing relationship between Purbaya, the Finance Minister, and Destry, the BI Governor candidate, they may even already be at soulmate level. It should not be difficult for the two of them to work together to formulate the policy core and share roles.

Said Abdullah, Chair of the DPR Budget Committee