The Bank of Indonesia (BI) has responded to the People’s Representative Council’s recommendation to print money up to Rp 600 trillion (S$55.3 billion) to support and finance the country’s economic slowdown caused by the COVID-19 pandemic.
The Indonesian central bank clarified that the recommendation does not align with a prudent and prevalent monetary policy, adding that the Bank of Indonesia never prints out money to be distributed directly to the public who are impacted by COVID-19.
“Recently we hear several points of view in the community, [saying that] BI can just print the money [to help the economic slowdown]. I am truly sorry to say that there is no money distribution process where BI can just print the money to be handed to the public. There is no such thing,” said the Governor of Bank of Indonesia Perry Warjiyo in a video conference on Wednesday (6 May).
He said that the printing of money is only done according to the rules and coordination between the Bank of Indonesia and the Ministry of Finance.
The amount printed shall be according to the people’s needs and must consider the principles for printing and destroying the money, which is evaluated based on the economic growth and inflation rate.
The mechanism of money distribution itself involves the Bank of Indonesia, the banks, and the people.
The banks deposit the money to BI if there is any excess money in the treasury, while the people can deposit their money to the banks in the form of saving account, current account, and deposit.
“So, how is the process of money circulation? It is according to people’s needs. For example, [when] we need money in bills and coins for food and paying for a taxi, we withdraw it from the ATM. If we have more money, we deposit it to a bank. The banks then will serve the people [directly],” said Mr Warjiyo.
Previously, the Budget Agency of the People’s Representative Council was reported to have recommended the Bank of Indonesia to print money in the amount of between Rp400 trillion to Rp600 trillion as a support fund or financing option needed by the government.
This recommendation was submitted as finding sources of financing during the COVID-19-related economic slowdown is challenging.
The recommendation has, however, raised some concerns among economists, politicians and members of the public.
An economist from the Institute for Development of Economics and Finance predicted that the printing of trillions of Rupiah will cause a high inflation rate in Indonesia.
“Printing money without a clear underlying asset can have an impact on high inflation,” Bhima Yudhistira told Detik on 30 April.
He cited the hyperinflation case in Zimbabwe, which saw the massive printing of Zimbabwean dollars in response to a series of economic shocks such as high national debt, the decline in economic output as well as export earnings.
At the time, Zimbabwe had a daily inflation rate of 98 per cent. Every day the price could double from the previous day. The unemployment rate was close to 80 per cent.
Deputy Chair of the People’s Consultative Assembly Syariefuddin Hasan asked the government to be careful and conduct an in-depth study and thorough analysis before adopting the policy.
According to Mr Hasan, who is also a Democrat Party politician, it would be instead more ideal to cancel some government projects, including the budget for infrastructure sectors and the moving of the capital city of Jakarta.
The same opinion came from House Commission XI of the People’s Representative Council Ecky Awal Mucharam, who requested BI to not print such a large amount of money without a proper foundation.
He reminded the government of what happened in Indonesia when the inflation rate went up high in 1998 and 1965, which resulted in low purchasing power among most residents, as the price of goods became extremely expensive.
“The people are the ones who will pay. [Meanwhile, it is] only enjoyed by several people or society. This is dangerous,” he said.