Indonesia's central bank governor, Perry Warjiyo, stepped down on Monday, a surprise move that analysts said could rattle investors worried about the central bank's independence, prompting the government to call for calm from market participants.
Destry Damayanti, a senior deputy governor at Bank Indonesia, was appointed as interim governor after President Prabowo Subianto accepted Warjiyo's resignation, State Secretariat Minister Prasetyo Hadi told reporters in a press conference, ahead of the opening of financial markets in Jakarta.
Destry, who pledged continuity at the central bank, said Warjiyo submitted his resignation on Saturday due to personal reasons.
BI has been under pressure to support Prabowo's big-growth agenda, while the rupiah slid to a historic low in June amid concern over Indonesia's fiscal management and central bank independence.
Indonesia's parliament last month passed sweeping legislation that reinforces BI's role in supporting growth, while empowering lawmakers to make binding recommendations for independent financial regulators and the central bank.
The rupiah weakened as much as 0.36 per cent to 18,000 to the dollar following the announcement, while the main stock index (.JKSE), flipped between gains and losses in choppy trade.
"What must now be anticipated after Perry's resignation is the weakening of Bank Indonesia's independence," said Bhima Yudhistira Adhinegara, executive director of Center of Economic and Law Studies. "Restoring investor confidence will certainly not be easy, especially since the direction of monetary policy is under executive control. As long as the political pressure on BI continues, Perry's internal replacement will not last long."
BANK INDONESIA ROLE AND INDEPENDENCE
Prasetyo said Warjiyo submitted his resignation through a letter to the president, but declined to elaborate on Warjiyo's personal reasons. Warjiyo, who did not attend the press conference, could not be reached for comment.
Warjiyo, who started his career at BI in 1984, was first appointed as governor in 2018. He was reappointed for a second five-year term by Prabowo's predecessor in 2023.
"A lot will depend on who takes over, with Destry, a senior deputy governor, stepping in initially. If Prabowo's nephew (Thomas Djiwandono), as a deputy governor steps in, the market will regard this with suspicion, given this is a crucial technocratic post and BI should remain independent," said Angus Mackintosh, an ASEAN specialist at Aletheia Capital in Singapore.
The appointment of a new governor would involve both the president and the parliament. The president will submit his nomination to the parliament for a "fit and proper test" before the parliament gives its approval.
"The president has not yet proposed the nomination," Prasetyo said.
The government urged market participants to remain calm during the transition period. The appointment process would be carried out transparently and accountably and would not disrupt monetary policy or economic stability, it said in a statement.
Destry, who was a commissioner at the Indonesia Deposit Insurance Corp and previously the chief economist at Bank Mandiri before joining BI's board, said BI "will always ensure the continuity of its duties and authorities" to maintain stability of the rupiah and financial system to achieve an economic environment that is conducive for growth.
Rating agencies Moody's and Fitch cited concerns regarding changes in Bank Indonesia's mandate as among key drivers of their credit rating outlook cut to "negative" earlier this year.
However, rival rating agency S&P this month kept its Indonesia rating outlook "stable" and said BI has had a level of operational independence since July 2005 that was roughly in line with regional peers, and it did not expect BI's changing mandate to drastically affect such independence. All three rated Indonesia's debt at the second-to-lowest investment grade.
BI surprised markets last week by keeping policy rates unchanged, instead offering new incentives to attract foreign capital inflows aimed at supporting the rupiah. BI had raised rates by a total of 100 basis points since May in an effort to shore up the rupiah.
Last year, the abrupt removal of Indonesia's influential finance minister Sri Mulyani Indrawati rattled markets, with investors fearing the country's fiscal credibility could be eroded by the populist and costly spending plans under Prabowo.