Falling stocks, a tumbling currency and now Bank Indonesia’s governor resigns

{"text":[[{"start":8.996,"text":"As Indonesian markets reeled from a heady cocktail of downgrade warnings, policy unpredictability and creeping state interventionism, the last thing investors expected was the departure of one of the country’s most well-regarded technocrats."}],[{"start":22.64,"text":"But the abrupt exit of the central bank governor this week at an already turbulent time for Indonesia has stoked fresh concerns over policymaking by President Prabowo Subianto and his macroeconomic direction."}],[{"start":35.654,"text":"Bank Indonesia governor Perry Warjiyo resigned over the weekend for personal reasons, according to the government, amid increasing pressure to support the president’s growth agenda and mounting concerns over the independence of the central bank."}],[{"start":48.56,"text":"“The timing is not ideal,” said Lakshmanan R, head of south and south-east Asia corporates at CreditSights, a Fitch unit. “They are fighting a lot of fires on multiple fronts . . . the central bank chief resigning has only led to the whole situation worsening.”"}],[{"start":63.68,"text":"Perry — whose resignation was announced by Prasetyo Hadi, one of Prabowo’s closest aides and cabinet secretary — has yet to comment on his departure. Prasetyo has dismissed speculation that Perry was forced to leave."}],[{"start":76.507,"text":"Forced exit or not, the governor’s departure at a sensitive time for south-east Asia’s largest economy has exacerbated concerns over policy credibility, governance and political interference in institutions critical to economic and financial stability."}],[{"start":92.064,"text":"Jakarta’s stock market is down 30 per cent this year, while the rupiah currency has slid 7.6 per cent in the same timeframe — both among the world’s worst performers."}],[{"start":102.16,"text":"Indonesian assets have been hammered by index provider MSCI’s warning that it could downgrade the country to a frontier from an emerging market. Rival S&P Dow Jones Indices also issued a similar warning this month."}],[{"start":115.784,"text":"Rating agencies, economists and investors have also been concerned by Prabowo’s expensive welfare policies and their poor execution, increasing state control and the expanding role of the military in civilian affairs."}],[{"start":128.117,"text":"Perry’s exit comes less than a year after the departure of long-serving finance minister Sri Mulyani Indrawati, who has been widely credited with building Indonesia’s fiscal discipline and earning the trust of foreign investors."}],[{"start":140.32,"text":"Perry was also seen as a safe pair of hands. As governor for eight years, he steered the central bank through the Covid-19 pandemic, a government transition and more recently the war in the Middle East."}],[{"start":153.398,"text":"The central bank has come under increasing pressure in recent months to support growth as the economy has faltered, leading to investor concerns that it could be distracted from its primary mandate of supporting the currency and the financial system."}],[{"start":null,"text":"

"}],[{"start":166.48,"text":"“Even though there had been market chatter around his tenure over the last few months, the timing of this [resignation] was quite abrupt,” said Fesa Wibawa, investment manager of Asia fixed income at Aberdeen."}],[{"start":178.005,"text":"Markets had begun to gain confidence that Perry had navigated the pressures well, he said. The central bank has increased interest rates by 100 basis points since May and adjusted bond yields to attract more foreign funds."}],[{"start":190.496,"text":"“They managed to find the right balance given the context,” Wibawa said. “When things did matter, he placed importance on financial stability.”"}],[{"start":198.38,"text":"Senior deputy governor Destry Damayanti has taken over as acting governor. As per Indonesian law, Prabowo can nominate up to three names for the post, with parliament making the final decision. In recent years, presidents have nominated just one person."}],[{"start":213.52,"text":"Prabowo’s pick will be closely watched. “The main question is whether Bank Indonesia will lean more aggressively toward supporting growth or continue prioritising macroeconomic and currency stability,” said Deepali Bhargava, ING’s Asia-Pacific head of research."}],[{"start":229.68,"text":"A technocrat will reassure investors, but a pro-growth or close Prabowo ally will be seen as a political appointee, said analysts."}],[{"start":236.215,"text":"Earlier this year, parliament — controlled by Prabowo’s allies — passed a law expanding the mandate of the central bank to include more growth-oriented directives. In January, Prabowo nominated his nephew Thomas Djiwandono to the board of the bank, also sparking independence concerns."}],[{"start":250.16,"text":"The governor’s exit at a critical time for Indonesia has also amplified worries that the government is not addressing market concerns."}],[{"start":257.379,"text":"Prabowo and other senior officials have repeatedly defended government policies even in the face of a sharp market sell-off. They have previously blamed investors and rating agencies for not fully understanding government objectives."}],[{"start":270.32,"text":"A less technocratic candidate would be problematic for investors, said Alexander Illum, senior analyst at investment management firm Global Evolution."}],[{"start":279.263,"text":"“We are concerned more now about the trajectory of the policymaking . . . whether they will commit to strong anchors in terms of independence of the central bank and fiscal prudence that have been playing such a huge part in [driving] developments in Indonesia for the past many years,” he said."}],[{"start":297.92,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785400771_1793.mp3"}