BANK INDONESIA’S POSITION AS A STATE INSTITUTION
From a constitutional standpoint, Bank Indonesia’s status as an independent institution is not parallel with higher state institutions such as the House of Representatives, National Audit Office and Supreme Court. Bank Indonesia’s status is also unlike any State Department as Bank Indonesia’s official position is separate from the Government. Such special status is required to enable Bank Indonesia to perform its roles and functions as the Monetary Authority more effectively and efficiently. Despite its status as an independent state institution, Bank Indonesia maintains a close working relationship and tight coordination with the House of Representatives, National Audit Office, Government and other relevant parties.
With respect to its relationship with the President and House of Representatives, at the beginning of each financial year Bank Indonesia delivers in writing an evaluation of monetary policy implementation and future monetary policy planning. In particular to the House of Representatives, Bank Indonesia’s role and responsibilities are reported quarterly or as requested by the House. Bank Indonesia also reports its projected and actual annual budget to the Government and House of Representatives. Furthermore, Bank Indonesia is obliged to disclose its annual financial report to the National Audit Office.
:: BI’s Relationship with the Government: Financial Relationship
Regarding its financial relationship with the Government, Bank Indonesia assists in the issuance and placement of government bonds in order to fund the State Budget. However, Bank Indonesia is prohibited from purchasing government bonds.
Bank Indonesia also acts as the Government’s cashier, administrating the government’s accounts held at Bank Indonesia. At the Government’s behest, Bank Indonesia is permitted to receive foreign loans for and on behalf of the Indonesian Government. However, Bank Indonesia’s role is centrally focused on uninterrupted monetary control effectiveness, extending credit to the Government to overcome deficit spending is no longer under the auspices of Bank Indonesia.
:: BI’s Relationship with the Government: Independence within Interdependence
Despite Bank Indonesia’s status as an independent state institution, consultative coordination with the Government remains essential, as Bank Indonesia’s responsibilities are an inseparable part of holistic national economic policies.
Coordination between Bank Indonesia and the Government is facilitated through cabinet sessions to discuss economic, banking and financial issues related to Bank Indonesia’s roles and functions. The Government may seek bank Indonesia’s opinion at the cabinet sessions. In addition, Bank Indonesia may provide input, opinion as well as recommendations regarding the Planned State Budget as well as other policies related to its mandate.
Conversely, the Government may attend Bank Indonesia’s Board of Governors’ Meeting with the right to be heard but no right to vote. Therefore, independence is strongly influenced by a stable proportional working relationship between Bank Indonesia, the Government and other related institutions.
:: Collaboration with other Institutions
Realizing the importance of support from various parties to ensure success in carrying out its duties, Bank Indonesia continuously collaborates and coordinates with many state institutions and other elements of society. Several collaborations are set out in a Memorandum of Understanding (MoU), Joint Decree or some other kind of formal agreement, which are intended to create synergy and clarify task distribution among institutions as well as encourage effective legal enforcement.
Ongoing collaborations include the following:
- Treasury Department: MoU detailing Target Setting, Supervision and Inflation Control Mechanisms in Indonesia; MoU on Bank Indonesia as an agent to process government foreign loans and grants; and a Joint Decree on the administration of government bond issuances in order to improve the soundness of the banking sector.
- Supreme Court & National Police: Joint Decree setting out collaboration to handle criminal activity in the banking sector.
- Indonesian National Police and State Intelligence Agency: MoU on the Eradication of counterfeit money.
- Coordinating Ministry for Public Welfare, Ministry of Cooperatives and SMEs: MoU on MSME Empowerment and Development
- Association of SUN Traders (Himdasun): MoU on the formulation of a Master Repurchase Agreement (MRA)
- Joint Decree of Minister of Finance & Governor of Bank Indonesia Concerning Coordination of Government Cash Management