Bank Indonesia Chief’s Shock Exit Fuels Prabowo Policy Worries

Perry Warjiyo Photographer: Dimas Ardian/Bloomberg Photo by Dimas Ardian /Bloomberg

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(Bloomberg) — As recently as Friday, Bank Indonesia Governor Perry Warjiyo was meeting investors in Singapore after a regional central bank forum.

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The discussions were business as usual and Warjiyo gave no indication he was leaving his post, people who attended said, asking not to be identified because the talks were private. Perhaps sensing concern, he even told them in jest he remained the governor.

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The next day, according to Bank Indonesia, Warjiyo abruptly resigned for “personal reasons.”

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His sudden exit two years before his term expires has set off a fresh wave of concern about Indonesia’s policy outlook under President Prabowo Subianto. Warjiyo, 67, had steered the central bank for eight years, and was considered a stable force in the face of Prabowo’s populist agenda.

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Warjiyo’s exit is “definitely not a positive development,” Polka Mishra, a partner at Javelin Wealth Management Pte. said in a Bloomberg Television interview. “He was looked at as a steady hand.”

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She said she isn’t allocating funds to Indonesia at the moment. “We are wary of markets where there are concerns around governance, and you can be caught off guard,” she said. 

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Warjiyo didn’t respond to a request for comment, and Bank Indonesia hasn’t commented beyond its initial statement.

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The upheaval threatens to undo a hard-fought recovery in Indonesia’s rupiah and bonds.

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The central bank’s aggressive rate hikes and non-rate measures were just beginning to bring in inflows at a time when currencies in other markets like India and the Philippines were still hovering near record lows.

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“Confidence was gradually returning following recent rate decisions aimed at supporting growth, alongside targeted measures to stabilize the rupiah,” ING Groep NV’s Deepali Bhargava said. “With Warjiyo’s departure, investors are likely to reassess the policy outlook.”

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Investors are now shifting their focus to Prabowo’s pick for governor, and whether that person will be pressured to pursue a more pro-growth path. A key worry is that it may go beyond rate cuts to using monetary policy to support the government’s spending, a risky dynamic known as “fiscal dominance.”

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Moody’s Ratings on Monday said the country could see higher volatility in its capital flows and rupiah, and the long-term implications for its sovereign credit rating will depend heavily on maintaining monetary policy credibility.

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For now, the appointment of Destry Damayanti, one of Warjiyo’s deputies, as acting governor has provided investors with some relief. Known and respected by many international stakeholders, her presence so far signals some continuity with Warjiyo’s policies.