Perry Warjiyo, Governor, Bank Indonesia (BI): Interview

Interview: Perry Warjiyo

Which measures had the greatest impact on the country’s economic trajectory over 2019?

PERRY WARJIYO: Despite unfavourable global conditions in 2019, we managed to ensure stability through low inflation and stable exchange rates. This was done by lowering the policy rate, loosening liquidity and stabilising the rupiah. We also maintained a loose macroprudential policy stance. This policy mix was directed at increasing supply and demand for bank intermediation and other economic financing to stimulate growth.

The accommodative monetary policy stance pursued in 2019 has been maintained going into 2020. We aim to keep inflation within the 2-4% target range and to maintain external sector stability, as well as catalyse economic growth momentum.

How can Indonesia enhance the attractiveness of its government securities and reduce capital outflows?

WARJIYO: Foreign capital flows and exchange rates in global financial markets remain volatile. Liquidity injections coupled with low interest rates in advanced economies have encouraged global investors to seek more attractive yields in emerging markets, such as Indonesia, in the form of portfolio investments in stocks, bonds and other securities. Exchange rate volatility, including the rupiah, is not only driven by interest rate parity conditions, but also by investment risk premiums.

It is therefore crucial to strengthen positive sentiment towards policy credibility and the national economic outlook. Consequently, various economic reform policies will be continued to improve the ease of doing business and attract more foreign capital to Indonesia, in particular foreign direct investment.

To mitigate the exchange and interest rate risk of investing in Indonesia, we have enriched hedging instrument alternatives as a part of our financial market deepening programme. This programme aims to promote instruments to finance infrastructure. We continue to develop various innovations in terms of infrastructure financing, including collective investment contracts, asset-backed securities, project bonds and green bonds. These various alternative financing instruments will provide more options for foreign investors in Indonesia. Similarly, we are continually promoting investment at our international offices.

Where do you see scope for greater BI participation in promoting the digitalisation of the economy?

WARJIYO: BI is already nurturing innovation in the digital economy, providing Indonesia with the opportunity to create inclusive economic growth and helping to establish a business ecosystem in the digital economy. We are also developing innovative payment systems to support the digital economy and digital finance. The Indonesia Payment Systems Blueprint 2025 launched in 2019 outlines a framework to support the growth of the digital economy. The blueprint encourages an end-to-end digital transformation, focusing on digital economic and financial integration in order to guarantee effective currency circulation, monetary policy transmission and financial system stability, as well as economic and financial inclusion.

What role can BI play in developing the wider sharia-compliant economy in the medium term?

WARJIYO: We have strengthened the implementation of the halal value chain ecosystem by empowering the Islamic boarding schools economy; Islamic micro-, small and medium-sized enterprises and corporations; and manufacturers and related industries by supporting a halal industry campaign. We will continue to accelerate efforts to deepen the Islamic financial market to strengthen liquidity management and Islamic financing. BI will continue to optimise Islamic social financing in the zakat (Islamic religious tax) and waqf (Islamic charitable trusts) sectors in order to promote inclusivity. As such, we are encouraging efforts to establish Indonesia as a point of reference for the global Islamic economy.