Indonesia Curbs Parliamentary Dismissal Powers, Expands Oversight of Central Bank

JAKARTA, Oct. 1, 2025 — Indonesia’s parliament has released a revised draft of a highly debated financial system bill, softening earlier provisions that would have allowed lawmakers to dismiss the head of the central bank, Bank Indonesia, or BI, while still significantly expanding parliamentary oversight of the institution, according to a document reviewed by Reuters.

The bill, which has been closely monitored by investors and economists, is part of President Prabowo Subianto’s broader effort to accelerate economic growth in the country. Critics have voiced concerns that increased legislative scrutiny could open the door to political interference in BI’s traditionally independent monetary policy.

From Dismissal Powers to Binding Reviews

Earlier Draft: Parliament could recommend the removal of Bank Indonesia’s board members, giving lawmakers a direct say in the composition of the central bank’s leadership. This provision represented a major shift from existing rules, under which board members can only be removed if they resign, are convicted of a crime, or are deemed physically or mentally unfit to serve. Critics warned that such authority could undermine the bank’s independence and expose monetary policy decisions to political influence.

Revised Draft: The explicit dismissal clause has been removed. Instead, the bill now mandates that parliament review the performance of BI’s board members and other financial regulators. Recommendations from these reviews would be binding, giving lawmakers formal influence over central bank policies without granting them direct power to fire board members. Observers note that this approach strengthens accountability and oversight while maintaining the legal independence of the bank, striking a compromise between political supervision and operational autonomy.

In addition, the revised draft introduces additional conditions under which BI board members may be dismissed, specifically if they are found to have violated the law. Observers note that this narrows the circumstances for dismissal but still represents a significant expansion of parliamentary oversight compared to current regulations.

How will Expanded Mandates Affect Bank Indonesia?

Another notable addition in the new draft is a provision requiring Bank Indonesia to implement “policy and policy mixes that create an economic environment conducive to real sector growth and job creation.” This confirms earlier reports that the central bank’s role would expand beyond its traditional focus on price stability to include direct support for economic growth, a shift that could place additional pressure on the bank amid political and market expectations.

The revised bill also increases the police’s role in investigating financial crimes. Under current law, such investigations are typically coordinated by the Financial Services Authority, or OJK, with police officers assisting OJK investigators as needed. By broadening the police’s authority, the draft may enhance enforcement capabilities but could also introduce questions about the separation of powers between regulators and law enforcement.

Investor Concerns and Market Implications

Investor sentiment toward the bill has been cautious. Market participants have expressed concern that even without explicit dismissal powers, increased parliamentary oversight and binding recommendations could influence BI’s independence, potentially affecting monetary policy decisions and the broader investment climate.

Parliamentarians have indicated that the bill will be presented for a wider vote in the near future, after which it will be enacted into law. Misbakhun emphasized that the revisions reflect a compromise between legislative oversight and the central bank’s operational independence.

Economists argue that balancing the central bank’s independence with the government’s growth agenda is a delicate task. While BI’s expanded mandate to support economic growth could stimulate investment and job creation, it also risks blurring the line between fiscal objectives and monetary policy, which could complicate efforts to control inflation and maintain financial stability.

In addition to the parliamentary review process, the new draft reinforces mechanisms for accountability and transparency, including the obligation for BI and other regulators to report their performance and policy outcomes to the legislature. Analysts note that while these measures improve oversight, the politically charged environment surrounding the bill could still influence the central bank’s decision-making.

As Indonesia navigates its path toward higher economic growth, the revised central bank bill represents a critical juncture in the country’s financial governance. The final version of the law will set the tone for how far political considerations may intersect with the central bank’s core mandate and could have lasting implications for investor confidence, regulatory integrity, and Indonesia’s economic trajectory.

The performance of the central bank and other financial regulators will now be subject to parliamentary review, with recommendations that are binding.

Inputs from Diana Chou

Editing by David Ryder