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No global bonds in sight as Indonesia shifts focus

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Foreign investors have dumped 122.4 trillion rupiah ($8.4 billion) in Indonesian assets as of this month. AFP

No global bonds in sight as Indonesia shifts focus

The Indonesian 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 Ministry of Finance’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 bonds) issued earlier this year, Luky said.

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 per cent from 39 per cent at the beginning of the year.

The government is planning to raise 35-40 trillion rupiah ($2.4-2.8 billion) every two weeks throughout the remainder of the year through the primary market, Luky explained, adding that retail bonds would be worth 35-40 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.

Indonesia’s financial markets have been hit by the coronavirus pandemic this year as foreign investors have dumped 122.4 trillion rupiah in Indonesian assets as of this month, ministry data show, 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 900.4 trillion rupiah in the second half of this year to cover for a widening budget deficit of 6.34 per cent of gross domestic product (GDP).

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

Bank Indonesia agreed earlier this month to buy 397.5 trillion rupiah worth of government bonds and bear the interest cost of the central bank’s policy rate of four per cent to fund healthcare and social safety net programmes 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 453 trillion rupiah from June to December.

However, despite not issuing global bonds, the government is looking to raise $5.5 billion from multilateral organisations 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.

Centre 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 per cent in the first quarter, the slowest in 19 years. The government expects the economy to shrink up to 5.08 per cent in the second quarter as the outbreak paralyses business activity.



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