Indonesia central bank governor Perry Warjiyo steps down in surprise move

JAKARTA — Indonesia's central bank governor, Perry Warjiyo, stepped down on Monday (July 27), a surprise move that analysts said could rattle investors worried about the central bank's independence and the country's fiscal management.

President Prabowo Subianto has accepted Warjiyo's resignation, State Secretariat Minister Prasetyo Hadi told reporters in an early morning press conference, ahead of the opening of financial markets in Jakarta.

Destry Damayanti, a senior deputy governor at BI, has been appointed as interim governor. Destry said Warjiyo had told the government on Saturday he was stepping down for personal reasons.

The rupiah weakened as much as 0.32 per cent to 17,992 a dollar following the announcement, while the main stock index flipped between gains and losses in choppy trade.

Prasetyo said Warjiyo submitted his resignation through a letter to the president, but declined to elaborate on Warjiyo's personal reasons. Warjiyo could not be reached for comment.

"What must now be anticipated after Perry's resignation is the weakening of Bank Indonesia's independence," said Bhima Yudhistira Adhinegara, executive director of Center of Economic and Law Studies. 

"Restoring investor confidence will certainly not be easy, especially since the direction of monetary policy is under executive control. As long as the political pressure on BI continues, Perry's internal replacement will not last long."

Bank Indonesia role and independence

Warjiyo was first appointed as governor in 2018. He was reappointed for a second five-year term in 2023.

"A lot will depend on who takes over, with Destry, a senior deputy governor, stepping in initially. If Prabowo's nephew (Thomas Djiwandono), as a deputy governor steps in, the market will regard this with suspicion, given this is a crucial technocratic post and BI should remain independent," said Angus Mackintosh, an Asean specialist at Aletheia Capital in Singapore.

Appointment of a new governor would involve both the president and the parliament. The president will submit his nomination to the parliament for a "fit and proper test" before the parliament gives their approval.

"The president has not yet proposed the nomination," Prasetyo said.

BI has been under pressure to support Prabowo's big-growth agenda, while the rupiah slid to an historic low in June amid global market turmoil and concern over Indonesia's fiscal management and central bank independence.

Indonesia's parliament last month passed sweeping legislation that doubles down on BI's role to support growth, while empowering lawmakers to make binding recommendations for independent financial regulators and the central bank.

BI "will always ensure the continuity of its duties and authorities" to maintain stability of the rupiah and financial system to achieve an economic environment that is conducive for growth, Destry told reporters following the announcement of the resignation.

She said BI will continue work in accordance to best practices.

Rating agencies Moody's and Fitch cited concerns regarding changes in Bank Indonesia's mandate as among key drivers of their credit rating outlook cut to "negative" earlier this year.

However, rival rating agency S&P this month kept its Indonesia rating outlook "stable" and said BI has had a level of operational independence since July 2005 that was roughly in line with regional peers and it did not expect BI's changing mandate to drastically affect such independence. All three rated Indonesia's debt at the second to lowest investment grade.

BI surprised markets last week by keeping policy rates unchanged, instead offering new incentives to attract foreign capital inflows aimed at supporting the rupiah. BI had raised rates by a total of 100 basis points since May in a bid to attract foreign inflows to shore up the rupiah.

Last year, the abrupt removal of Indonesia's influential finance minister Sri Mulyani Indrawati rattled markets, with investors fearing the country's fiscal credibility could be eroded by the populist and costly spending plans under Prabowo.

[[nid:740925]]