Indonesia's rupiah slumped to 18,009 to the U.S. dollar yesterday, its lowest level since the 1997-1998 Asian Financial Crisis, following the resignation of Bank Indonesia Governor Perry Warjiyo. The Jakarta Stock Exchange Composite Index fell 0.5 percent. State Secretariat Minister Prasetyo Hadi announced Warjiyo's departure, stating the president accepted the resignation and conveyed gratitude for his seven years of service.
Warjiyo, who began his career at BI 42 years ago and served as governor since 2018, cited only 'personal reasons' for stepping down. He did not meet President Prabowo Subianto directly before submitting his resignation. Senior Deputy Governor Destry Damayanti, a former chief economist at Bank Mandiri, will serve as acting governor. The next governor will be chosen from a list of three candidates proposed by Prabowo, subject to parliamentary approval.
The State's Grip Tightens
This leadership transition unfolds amid President Prabowo's aggressive economic policy, which targets an 8 percent annual GDP growth for the remainder of his term. This policy has widened the fiscal deficit toward its legally mandated ceiling of 3 percent of GDP. It has also increased the state's involvement in the Indonesian economy, aiming to maximize the country's return from natural resources and international trade.
Concerns about political influence over the central bank intensified with the appointment of Thomas Djiwandono, President Prabowo's nephew, as deputy finance minister 2 years ago. Djiwandono, a former journalist and financial analyst, was then nominated as BI deputy governor in February of this year. This move, along with the firing of respected Finance Minister Sri Mulyani Indrawati 1 year ago, has unsettled investors.
Capital's Unease
Global financial institutions have reacted to the perceived erosion of central bank independence. Moody's and Fitch announced ratings outlook downgrades for Indonesia in March of this year. Fitch specifically cited 'increasing policy uncertainty and erosion of Indonesia's policy mix consistency and credibility' alongside 'growing centralization of policymaking authority.'
Further compounding capital's anxieties, MSCI threatened to downgrade Indonesia to 'frontier market' status. This potential downgrade, to be decided in November, stems from transparency concerns in the stock market, including the high concentration of ownership in certain companies and the limited 'free float' of shares. Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies, warned that Warjiyo's resignation would weaken Bank Indonesia's independence. He stated, 'Restoring investor confidence will certainly not be easy, especially since the direction of monetary policy is under executive control.'
Despite these developments, the government maintains that the leadership change will not disrupt monetary policy or economic stability. Interim Governor Destry Damayanti affirmed the central bank would 'always ensure the continuity of its duties.'