Monitoring
the latest economic conditions in Indonesia, the impact of COVID-19 in
particular, Bank Indonesia Governor, Perry Warjiyo, announced three new
developments on Thursday (02/04) along with the policy measures instituted
under the authority of Bank Indonesia, specifically in relation to promulgation
of Government Regulation in Lieu of Law (Perpu) No. 1 of 2020, as follows:
1. Rupiah
exchange rate currently stable
Seeking to maintain
rupiah exchange rate stability in line with the currency's fundamental value
and market mechanisms, Bank Indonesia has strengthened the intensity of triple
intervention policy in the spot and DNDF markets, while continuing to purchase
SBN in the secondary market. Bank
Indonesia is confident that the rupiah exchange rate is stable and will
strengthen to a level of Rp15,000/USD by the end of the year. Through coordination with the Government,
Bank Indonesia is also confident that economic growth will not fall below 2.3%
in 2020.
Bank Indonesia has
reiterated that the macro indicators delivered at the economic stimulus press
conference represent a what-if scenario and not projected readings. The what-if scenario has been simulated so
that it can be prevented and anticipated through coordinated efforts between
the Government, Indonesian Financial Services Authority (OJK) and Deposit Insurance
Corporation (LPS).
2. SBN
purchases by Bank Indonesia in the primary market as a last resort
Bank Indonesia has
emphasised that expanding the jurisdiction of Bank Indonesia to purchase
long-term SBN, SUN/SBSN in the primary market in order to assist the Government
manage the impact of COVID-19 on financial system stability is regulated
pursuant to Government Regulation in Lieu of Law (Perpu) No. 1 of 2020 as a
last resort, not a bail-out or BLBI.
Bank Indonesia's role as
last resort is to purchase SBN in the primary market if market capacity is
unable to absorb all SBN issued by the government (due to high and irrational
yields, amongst others).
Bank Indonesia supports
promulgation of Perpu under extraordinary circumstances due to the COVID-19
pandemic, thus requiring extraordinary measures to relax existing legislation
(by issuing a Perpu) in order to mitigate the impact of COVID-19 as the legal
basis of joint anticipatory measures with the Government, OJK and LPS.
3. Bank
Indonesia has also emphasised that legislation to manage the flow of foreign
exchange for Indonesian residents as contained in Perpu No. 1 of 2020 is not a
foreign exchange control and there are currently no plans to issue policy
requiring foreign exchange proceeds from exports to be converted into rupiah by
residents. Bank Indonesia would like to
convey the following points:
1) Bank
Indonesia would like to stress that this is not a foreign exchange control but
policy to manage foreign exchange applicable only to Residents (excluding
non-residents/foreign investors).
Foreign portfolio investment (stocks and bonds) and foreign direct
investment (FDI) are still required for the Indonesian economy, thus existing
policy permitting the free flow of foreign exchange by foreign investors
remains effective.
2) Foreign
exchange management for Residents could require the conversion of foreign
exchange proceeds from exports into rupiah, yet there are currently no plans to
introduce such measures. Existing
regulations remain in place for exporters and importers. Foreign exchange management is required to
support macroeconomic and financial system stability, including rupiah exchange
rate stability.
3) Regulating
foreign exchange amongst residents is consistent with international prudential
principles for macroeconomic management, particularly under economic distress,
such as the current COVID-19 pandemic.
Bank
Indonesia will continue to coordinate with the Government, OJK and LPS to
carefully monitor the dynamics of the COVID-19 pandemic and the economic impact
on Indonesia over time, including the coordinated policy measures required to
maintain macroeconomic and financial system stability, while supporting
sustainable and resilient economic growth in Indonesia.
