Central bank’s role in crisis situation discussed

An online internship programme “Contemporary dynamics of Indonesia” held its second part on the “Role of central bank in maintaining financial stability during the crisis”, a statement said.

Anastuty Kusumowardhani, chief representative of the Bank of Indonesia, Singapore, and Dr Amir Hussain, assistant professor, Institute of Management Sciences, University of Peshawar, were the key speakers on the occasion.

The programme is being organised as a collaboration between the Indonesian Embassy and the University of Peshawar. The University of Peshawar is one of the universities where the Indonesian Embassy intends to establish “Indonesian Corner” since it is the one of the oldest and prestigious university in Pakistan and also considered to be the mother university in Khyber-Pakhtunkhwa.

Indonesian Ambassador Adam Tugio described the OIP as a prelude to the “Indonesian Corners” that the embassy looks forward to establish at the leading universities in Pakistan.

According to Ambassador Tugio, the “Indonesian Corners” were intended to serve as the hub of academic and cultural activities and to enhance linkages between the academia, artists and professionals of the two countries by way of organising various programmes such as language courses, online internship programmes, seminars, festivals, sports events and other activities of common interest.

The guest speaker from the Bank of Indonesia began her presentation with the history of the Bank of Indonesia, which is the Central Bank of Indonesia.

She outlined the tasks, role, duties and functions of the bank and shared its vision and mission with the audience.

Kusumowardhani said that the Covid-19 pandemic placed the Indonesian economy under enormous pressure in 2020, with sources of turbulence unlike anything before.

The immediate government response to curb the spread of Covid-19 through imposition of large-scale social restrictions, inevitably weighed on economic performance. The policies aimed at containing the spread of the Covid-19 pandemic, led to reduced personal mobility and a drop in spending on goods and services.

The consumption, investment, transportation, tourism, production and the confidence of economic agents fell significantly, resulting in a sharp drop in the economic growth, she added.

The policy synergies pursued by the government, Bank of Indonesia and relevant authorities sought to mitigate the extraordinary impact of the Covid-19 and worked continually to build optimism for economic recovery.

The bank representative shared the salient features of the National Economic Recovery Programme, which provided coordination and synergy among the government, Bank of Indonesia and other relevant institutions and banks.

The national economic recovery programme protected the consumption and purchasing power of the poor and vulnerable, funding for small and medium enterprises, tax incentives for businesses, the establishment of projects to absorb labour and credit restructuring.

The Indonesian speaker said that against a background of low inflation, the Bank of Indonesia pursued an accommodative policy mix by providing a monetary stimulus through repeated interest rate cuts and a large-scale quantitative easing. This policy was supported by the measures to stabilise the rupiah, relaxation of macro-prudential policies and digitalisation of the payment system.

The Indonesia’s national economy in the second quarter of 2021 moved into positive territory for the first time since the Covid-19 outbreak at the beginning of 2020, achieving 7.07 per cent (YoY) growth, she said, adding that the Bank of Indonesia projects national economic growth in the range of 4.7 to 5.5 per cent in 2022, up from 3.2 to 4 per cent in 2021, driven by the ongoing economic improvements that are driving solid export performance, coupled with the growing domestic demand in terms of consumption and investment.

This is supported by a faster vaccination rollout, reopening of economic sectors and policy stimuli.

The Bank of Indonesia policy mix in 2022 will remain synergised as part of the national economic policy direction to accelerate recovery, while maintaining economic stability.

She said the inflation will remain under control within the 3 per cent ±1 per cent target corridor in 2022 and the current account deficit will remain low and manageable in the 1.1 to 1.9 per cent range in 2022, adding that the digital economy and finance will also expand quickly and significantly.

The policy mix comprised five salient policy instruments that included monetary policy, macro-prudential policy, payment system policy, financial market deepening policy, MSME policy and the Shariah economy and finance, she said.

Indonesia had strong financial foundations but the government continue to address several risks, including commodity price volatility, inflation, disruption of supply chain and the emerging geopolitical dynamics such as Russia-Ukraine conflict and the rising international oil prices that were hampering global economic recovery.

Dr Amir Hussain said that the State Bank of Pakistan (SBP) faced the similar challenges like Indonesia and divided Pakistan’s financial crisis in the pre-Covid-19, during the Covid-19 and post-Covid-19 categories and provided details about how the government and the central bank played its role in managing the crisis.

He cited the new government coming to power following the 2018 elections and issues pertaining to the International Monetary Fund (IMF) programme among the major reasons for the pre-Covid-19 crisis when the government had to really work hard to reduce the fiscal and current account deficits.

He also discussed how the government focused on the construction industry and managed to improve the economic indicators.

He also touched upon the government policy shift to stop artificially control foreign currency exchange rate and the impact of the switching to the market-based flexible exchange rate system, which resulted in the major depreciation of the local currency and impacted the fiscal policy rate and triggered inflationary pressures. Hussain also highlighted the government’s social safety and poverty alleviation programmes and the loan and tax incentives to the industrial sectors and businesses to protect the vulnerable segments of the society.

He outlined the central bank’s key measures and incentives to absorb the negative impacts of the Covid-19 pandemic, which included housing schemes for the general public on low markup rates and the Roshan Digital Account for the overseas as innovative and bold steps of the government that worked out together with the central bank of Pakistan.

The next session of the OIP on “Indonesia’s potential in Shariah economy and halal market” is scheduled on April 21, 2022.