Indonesia Set for Rate Decision Under Cloud of Corruption Probe

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(Bloomberg) — Indonesia’s central bankers are gathering for the year’s final interest rate decision, with questions swirling over an escalating probe by the country’s anti-corruption agency.

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The corruption watchdog known as KPK on Monday raided the office of Governor Perry Warjiyo and several other rooms at Bank Indonesia’s headquarters in Jakarta, the KPK director for enforcement Rudi Setiawan said in a briefing on Tuesday. The raid, at about 7 p.m., was part of an ongoing probe into the monetary authority’s use of corporate social responsibility funds.

“There were several items obtained,” he said, including documents and electronic evidence in the alleged misuse of CSR funds in 2023. “We will clarify this further later. Anyone related to our findings will then be investigated.”

The investigation is likely to lead to questions for Governor Warjiyo and others when the central bank holds a briefing at around 2 p.m. Jakarta time today, with its policy rate decision likely around 2:30 p.m. The central bank will proceed with the announcement, spokesperson Ramdan Denny Prakoso said in a separate statement on Tuesday.

Bank Indonesia “supports investigation efforts, and is cooperative with the KPK,” Prakoso said.

The rupiah widened its loss to 0.3% to 16,118 against the greenback as of 11:25 a.m. on Wednesday. The currency is on track for its longest losing streak in more than two months.

“The recent raid at the central bank’s offices has further hurt market sentiment on the rupiah amid heightened global trade uncertainties. We estimate that he raid has led to markets pricing in 1-1.5% additional risk premium on the rupiah for now,” said Lloyd Chan, an FX strategist at MUFG Bank Ltd.

With few details available so far, the potential impact of the probe on Warjiyo is unclear. In late November, Indonesian President Prabowo Subianto, a former general, praised him as vital to maintaining the country’s financial stability, and compared him and Finance Minister Sri Mulyani Indrawati to four-star military generals defending the nation’s sovereignty through prudent financial management.

“We have the responsibility to protect our people’s hard-earned money,” Prabowo said, addressing the financial regulators and bankers attending the event. “You are given the trust, credibility to do so.”

Last year Warjiyo was given a second five-year term as Indonesia’s top central banker, having helped the country maintain a relatively fast pace of growth despite the challenges of the pandemic.

Warjiyo had said in September that Bank Indonesia follows strict governance procedures in deciding on and implementing CSR programs. Funding is also provided only to foundations — not individuals — mainly in the fields of education, social development and community empowerment, he added.

The KPK plans to summon Bank Indonesia officials for questioning as part of the investigation, the watchdog’s Setiawan said. It’s also conducting a similar probe into the Financial Services Authority and other agencies. Two suspects have been identified in the case, he said, without providing details about the individuals or what institution they were affiliated with.

A slim majority of economists in a Bloomberg poll expect the BI-Rate will be kept at 6% despite slowing economic growth and inflation, as policymakers seek to steady the rupiah.

–With assistance from Norman Harsono, Prima Wirayani and Claire Jiao.

(Updates market moves, adds analyst comment in seventh paragraph)