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Crisis over: Govt pledges ‘burden sharing’ with BI ends this year
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Finance Minister Sri Mulyani Indrawati (left) and Bank Indonesia Governor Perry Warjiyo (right) brief the press after the G 20 Finance Ministers and Central Bank Governors Meeting in Washington DC, on Oct. 14, 2022. (Finance Ministry/Public Relation Team)
A
n agreement between the government and Bank Indonesia (BI) to collaborate on financing the deficit will end this year, as the Finance Ministry promises not to extend the policy to 2023, following greatly improved economic and pandemic conditions that make such measures less urgent for the near future.
Finance Minister Sri Mulyani Indrawati said on Tuesday that ending the agreement would ensure BI’s independence, as the government and the central bank are set to return to their normal duties, with separate monetary and fiscal roles.
“The arrangement ends this year because we consider the pandemic-induced crisis is over,” Sri Mulyani told reporters during a monthly briefing on the state budget.
The fiscal monetization agreement between the government and BI, known as “burden sharing” enables the central bank to help finance the fiscal deficit by purchasing government bonds on the primary market rather than as previously only on the secondary market.
Read also: Year of turmoil to test fiscal consolidation
The arrangement was permitted under the 2020 COVID-19 Response Law and limited until 2022, but the newly passed omnibus Financial Sector Law has extended the use of burden sharing beyond this year, albeit only after the president declares that a crisis has occurred.
Experts have expressed concern that the new law could lead to moral hazard and undermine the government’s fiscal discipline following possible extended use in the future, as defining a crisis could be set depending on the interests of the government.
