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Jakarta Post

No global bonds in sight as Indonesia focuses on local debt market

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Mon, July 27, 2020   /   08:06 am
No global bonds in sight as Indonesia focuses on local debt market Rupiah banknotes ( Matlak)

The government is not likely to issue another global bond this year as it aims to focus on strengthening the local debt market while relying on domestic investors amid the pandemic.

“We currently have no plan to issue another global bond in the second half,” the Finance Ministry’s financing and risk management director general, Luky Alfirman, said on Friday.

The government has raised a total of $9.9 billion from global bonds in the first half, including from dollar-denominated bonds and global sukuk (sharia-compliant bond) issued earlier this year, according to Luky.

In the meantime, the government aims to attract more domestic investors to fund the country’s budget deficit during the global health crisis, as foreign ownership of Indonesia’s sovereign debt papers (SBNs) has fallen significantly to 29.6 percent from 39 percent at the beginning of the year.

The government is planning to raise Rp 35 trillion to Rp 40 trillion every two weeks throughout the remainder of the year through the primary market, Luky explained, adding that retail bonds would be worth Rp 35 trillion to Rp 40 trillion in the second half of the year.

“We want to attract investment from domestic investors to prop up financing because this will make [the debt market] more resilient” to global economic shocks, Luky said, adding that it had a strategy in place to increase domestic ownership of SBNs.

The country’s financial markets have been hit by the coronavirus pandemic this year as foreign investors have dumped Rp 122.4 trillion in Indonesian assets as of July, according to the ministry’s data, which has weakened the rupiah exchange rate and caused a spike in yields of government debts earlier this year.

To fund its COVID-19 fight, the government is planning to raise Rp 900.4 trillion (US$61.8 billion) in the second half this year to cover for a widening budget deficit of 6.34 percent of gross domestic product.

The government’s Rp 695.2 trillion stimulus was introduced to boost the economy, which is expected to shrink 0.4 percent at worst or grow 1 percent at best.

Bank Indonesia agreed earlier this month to buy Rp 397.5 trillion worth of government bonds and bear the interest cost of the central bank’s policy rate of 4 percent to fund healthcare and social safety net programs amid the coronavirus pandemic.

“We are currently setting up a special account at the central bank and hopefully next week we may start the implementation,” Luky said, adding that the burden-sharing scheme would reduce SBNs in the financial market to around Rp 453 trillion from June to December.

However, despite not issuing global bonds, the government is looking to raise $5.5 billion from multilateral organizations in the second half after raising $1.8 billion in the first half from five multilaterals, including the World Bank and the Asian Development Bank (ADB).

“We are focusing on getting loans from our multilateral partners in the second half this year after focusing on raising funds from global bonds in the first half,” he added.

Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah urged the government to consider the current economic condition before relying on domestic investors.

"The government's strategy to strengthen the bond market is appropriate but it will need economic growth that can create a new middle-class, as well as expansive monetary policy,” he said.

The Indonesian economy grew 2.97 percent in the first quarter, the slowest in 19 years. The government expects the economy to shrink up to 5.08 percent in the second quarter as the outbreak paralyzes business activity.