Indonesia gets innovative in raising US$62 bil to finance virus fight

Finance Minister Sri Mulyani Indrawati is employing a clutch of rarely used financing tools. (Reuters pic)

JAKARTA: Indonesia is turning to a wide range of funding options to help raise 1,000 trillion rupiah (US$62 billion) to finance a record fiscal stimulus needed to shield the economy from recession.

Finance Minister Sri Mulyani Indrawati is leaning on a clutch of rarely used financing tools, while reducing reliance on local borrowing amid heightened market volatility triggered by the coronavirus outbreak.

The government’s debt managers pulled off the first 50-year dollar bond sale by an Asian country this week, raising US$4.3 billion in a multi-part dollar debt offering overseas.

Indonesia’s budget deficit is set to swell by almost threefold to 853 trillion rupiah this year, or 5.07% of gross domestic product, after President Joko Widodo temporarily scrapped a deficit ceiling of 3% of GDP introduced in the wake of the Asian financial crisis.

The government has raised 24% of the financing for the fiscal shortfall through debt issuances as of March.

Here’s a look at other possible fund-raising options:

Rupiah bonds

Rupiah-denominated bonds and sukuk usually account for almost 80% of the debt financing, either raised through auctions or retail offerings.

The exodus of foreign investors from rupiah bonds so far this year means this won’t be an easy option: the net outflow from bonds is already at US$8.6 billion, with foreign ownership dropping to 32% from about 39% at the end of last year.

The target for net bonds issuance has now been increased to 549.6 trillion rupiah from 389.3 trillion rupiah.

If the flight to dollars further boosts local yields, Bank Indonesia can step in to buy the treasury bills and bonds in the primary market and help the government under the new fiscal deficit rules.

Euro/yen bonds

Indonesia often issues at least one tranche of its overseas bonds in euro or yen. The government has the flexibility to issue any bonds denominated in any of the currencies and will weigh euro and yen options, Indrawati said this week. The timing will depend on market conditions, she said.

Multilateral loans

Loans from multilateral agencies, such as the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank, are among the options being explored by the government. It may secure US$7 billion from these institutions this year, according to Indrawati.

Surplus funds

The government has around 165 trillion rupiah of budget surplus that can be tapped to maintain cash flow. It’s considered a low-cost financing source and will help reduce funding from the markets, Indrawati said.

Private placement

State-owned enterprises, Deposit Insurance Corporation, Hajj Funds Management Agency, pension funds or other agencies managing public investment have deep pockets and will turn to government securities to minimise investment risks. The government often turns to these agencies to privately place debt of various tenors.

Recovery bonds

The government is hoping to raise as much as 450 trillion rupiah this year from recovery bonds, also known as pandemic bonds.

The government is already in talks with Bank Indonesia to work out details of the new instrument as the central bank will be allowed to purchase the debt in the primary market.

The proceeds from the recovery bond sales will be used to provide special loans for companies impacted by the coronavirus outbreak.