Central Bank Independence Should Have Its Limits
Investors have taken the blurring boundary between Bank Indonesia and the government in stride. Officials should tread carefully.
She's pretty convincing.
Photographer: Kiyoshi Ota/BloombergYou think the Federal Reserve's relaxed approach to inflation is a big shift? Consider Indonesia. Not only have officials embraced a revolution in monetary thinking, still greater changes may be afoot.
Anxiety about an erosion of central bank independence, a totem of modern economic orthodoxy, started to bubble up Monday evening after a panel of experts presented a draft bill in the Indonesian parliament. The proposals give ministers a say over interest rates and would beef up Bank Indonesia's mandate to give greater consideration to employment, in addition to currency and price stability. One plank envisages a board presided over by the finance minister. The announcement came after announcing direct central bank financing of government spending in July.