The currency fell to around 16,945 per US dollar, hovering near levels last seen during the 1998 Asian financial crisis and close to a record low touched in April last year. The rupiah had already been under pressure amid worries about Indonesia’s widening fiscal risks and slowing growth momentum.
The latest bout of weakness followed the announcement that Djiwandono — currently serving as deputy finance minister — had been put forward to fill a vacant post at the central bank. Markets reacted nervously, with analysts flagging fears that the move could open the door to greater political influence over monetary policy.
Nepotism concerns trigger market jitters
Analysts said investors viewed Thomas’s nomination as a move to sway the central bank into supporting President Prabowo’s push to achieve an ambitious 8 per cent economic growth target this year.
“If Thomas is elected one of the governors, I think there will be more concern over the independence of the central bank,” Rully Arya Wisnubroto, chief economist and head of research at Mirae Asset Sekuritas Indonesia, told the Financial Times.
Prabowo, a former military general who assumed office last year, has repeatedly pledged to lift Indonesia’s economic growth to 8 per cent from the current pace of around 5 per cent. Analysts say achieving that target would require looser fiscal and monetary settings, a sharp break from the discipline imposed after the 1998 crisis.
Government moves to reassure markets
The government has sought to play down those concerns. Finance Minister Purbaya Yudhi Sadewa said that Djiwandono’s nomination would not undermine the central bank’s autonomy.
“It has no connection to independence,” Purbaya said. “Unless, when making decisions, there is direct government intervention. So far, there hasn’t been any. So BI is independent.”
When asked if Thomas would remain a government official if his nomination was confirmed, Purbaya said, “As soon as he joins BI, he should be independent, not a government element.”
Following the currency’s decline, Purbaya reiterated that the administration would “maintain the independence of the central bank to the maximum extent possible”.
State Secretary Prasetyo Hadi said Djiwandono is one of several candidates nominated for the vacant post. The nomination will go before parliament’s lower house, which will select the candidate. Prabowo’s ruling coalition commands a comfortable majority in the legislature, easing the path for government-backed nominees.
In a statement, Bank Indonesia said it remained committed to its primary mandate of maintaining rupiah stability, ensuring a smooth payment system and safeguarding financial system stability to support sustainable growth.
Over the past year, the central bank has intervened frequently in currency markets to stem the rupiah’s slide. However, economists warn that a shift towards a more explicitly pro-growth mandate could see BI tolerate a weaker currency for longer.
