Bank Indonesia Chief’s Shock Exit Fuels Prabowo Policy Worries

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Or sign-in if you have an account.Perry Warjiyo Photographer: Dimas Ardian/Bloomberg Photo by Dimas Ardian /Bloomberg(Bloomberg) — As recently as Friday, Bank Indonesia Governor Perry Warjiyo was meeting investors in Singapore after a regional central bank forum.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe discussions were business as usual and Warjiyo gave no indication he was leaving his post, people who attended said, asking not to be identified because the talks were private. Perhaps sensing concern, he even told them in jest he remained the governor.The next day, according to Bank Indonesia, Warjiyo abruptly resigned for “personal reasons.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againHis sudden exit two years before his term expires has set off a fresh wave of concern about Indonesia’s policy outlook under President Prabowo Subianto. Warjiyo, 67, had steered the central bank for eight years, and was considered a stable force in the face of Prabowo’s populist agenda.Warjiyo’s exit is “definitely not a positive development,” Polka Mishra, a partner at Javelin Wealth Management Pte. said in a Bloomberg Television interview. “He was looked at as a steady hand.”She said she isn’t allocating funds to Indonesia at the moment. “We are wary of markets where there are concerns around governance, and you can be caught off guard,” she said. Warjiyo didn’t respond to a request for comment, and Bank Indonesia hasn’t commented beyond its initial statement.The upheaval threatens to undo a hard-fought recovery in Indonesia’s rupiah and bonds.The central bank’s aggressive rate hikes and non-rate measures were just beginning to bring in inflows at a time when currencies in other markets like India and the Philippines were still hovering near record lows.“Confidence was gradually returning following recent rate decisions aimed at supporting growth, alongside targeted measures to stabilize the rupiah,” ING Groep NV’s Deepali Bhargava said. “With Warjiyo’s departure, investors are likely to reassess the policy outlook.”Investors are now shifting their focus to Prabowo’s pick for governor, and whether that person will be pressured to pursue a more pro-growth path. A key worry is that it may go beyond rate cuts to using monetary policy to support the government’s spending, a risky dynamic known as “fiscal dominance.”Moody’s Ratings on Monday said the country could see higher volatility in its capital flows and rupiah, and the long-term implications for its sovereign credit rating will depend heavily on maintaining monetary policy credibility.For now, the appointment of Destry Damayanti, one of Warjiyo’s deputies, as acting governor has provided investors with some relief. Known and respected by many international stakeholders, her presence so far signals some continuity with Warjiyo’s policies.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Prabowo will next need to nominate a candidate, or candidates, to parliament, which would then vet and approve the appointment. The timing of that is unclear.One possible contender for the governor position is current Finance Minister Purbaya Yudhi Sadewa. He took office last year after Prabowo ousted Sri Mulyani Indrawati as finance chief, a move that also triggered market jitters.While Warjiyo and Purbaya often presented a unified stance publicly, there were occasional signs of friction.Purbaya had openly cast doubt on Bank Indonesia’s management. In January, for instance, he told reporters he could solve rupiah weakness in just two days, but he wasn’t the central bank.Some of Purbaya’s initiatives also elbowed into the central bank’s territory. In May, Purbaya said he would use the government’s cash reserves to buy up bonds and bring down borrowing costs. The initiative was halted by Bank Indonesia last month, as it sought to raise yields to lure foreign flows and underpin the currency.Warjiyo was fighting an uphill battle to support a currency that investors were fleeing. Spiking oil prices and looming US Federal Reserve rate hikes were already battering emerging markets and energy importers like Indonesia. On top of that, investors were deeply worried about how Prabowo would manage the economy.But Warjiyo publicly followed Prabowo’s lead, pledging all-out support for growth and cutting interest rates to boost consumption and lending. He also allowed Bank Indonesia to shoulder some of the government’s borrowing costs to fund Prabowo’s priority programs — a move last done during the pandemic.He then dialed back that stance earlier this year amid unrelenting pressure on the rupiah, first by holding rates steady and then aggressively tightening monetary policy as the currency hit fresh lows.As of Friday, before the resignation, the currency had strengthened 0.7% since Warjiyo delivered an off-cycle interest-rate hike in early June. It’s now lost those gains and is among the weakest performers in Asia this quarter and the worst this year.Arriving at the presidential palace Monday night, Damayanti was asked if the central bank had intervened again to steady the rupiah. She responded that the bank “continues to do what we’ve always been doing.”—With assistance from Grace Sihombing.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.