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Experts urge BI to have exit strategy from burden-sharing scheme as risks loom
Under the scheme, the central bank is to buy up to $28 billion in government bonds while shouldering the debt costs.
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The government and Band Indonesia have agreed to a US$40 billion debt monetization scheme to be implemented this year only to fund Indonesia’s COVID-19 response. (JP/Rafaela Chandra)
B
ank Indonesia (BI) needs an exit strategy from a scheme to finance the country’s fiscal deficit, as risks loom in the long run over the government’s plan to have a wide deficit again next year and lawmakers propose to revise prevailing laws on the central bank, experts have said.
The government’s plan to run with a big budget deficit this year and next year, signaling that the “burden sharing” agreement is not a “one-off operation”, said Australia-based Lowy Institute nonresident fellow Stephen Grenville. The recent House of Representatives’ proposal to make the bond-buying program permanent could pose risks to the country’s economy, he added.
The burden sharing scheme and the bill might erode the central bank’s profits and its independence and cause inflation in the long run, Grenville told a discussion on Tuesday.
“The burden-sharing is not a free lunch. We think the House and even the government itself is motivated by the myth of cheap budget financing."
Read also: BI to remain standby buyer for Indonesia’s government bonds in 2021
The government and BI have agreed to a US$40 billion debt monetization scheme to be implemented this year only to fund Indonesia’s COVID-19 response. Under the scheme, the central bank will buy up $28 billion in government bonds while shouldering the debt costs.
The government expects the budget deficit to reach 6.34 percent of gross domestic product (GDP) this year and 5.5 percent of GDP next year as it seeks to boost spending amid falling state revenue collection due to the sluggish economy.
