Bali Mandar Toll Road (Image credit: Waskita Karya)

JAKARTA (TheInsiderStories) – In anticipation of lingering global uncertainty, the government will issue 100 per cent of its foreign currency bonds (or sovereign bonds) during the first half (H1) of 2018. The decision is also seen as a move to mitigate global market risk.

This year, the government plans to sell three types of foreign currency bonds, namely, US-dollar bonds, Euro-denominated bonds and Yen-denominated bonds.

The Finance Ministry has said it intends to raise Rp846.6 trillion through issuing government bonds and treasury bills this year; around 20 per cent of this sum will derive from sovereign bonds, worth Rp169.28 trillion.

Data Source : Finance MInistryDirector of Budget Financing and Risk Management at the Finance Ministry Luky Alfirman admits that 2018 will likely be challenging, even though the overall situation looks to improve. Among the issues facing the bank are an anticipated increase of the US federal fund rate, a stalling Chinese economy and strengthening commodity prices.

“We note that global markets are still engulfed with uncertainty. Thus, we have decided to resort to a front-loading strategy,” he explained.

As one aspect of this front-loading strategy, the Finance Ministry has issued US$4 billion in sovereign bonds in early December 2017, to be considered as a sovereign bond issue in the first quarter of 2018.

Subsequently, the government will issue a Global Syariah Bond (or Sukuk) in April, a Samurai Bond in May and dual currency (US-dollar and EU-Euro) bonds in June.

Director of Government Bonds at the Finance Ministry Loto Srinaita Ginting pointed out how this dual currency program results from the US dollar exchange rate against the Rupiah being more favorable than that of the Euro.

“In terms of cost, we see that the US dollar is slightly cheaper than the Euro,” she said.

The total issuance of government bonds, amounting to Rp 846.4 trillion, will be used to cover a fiscal deficit of around Rp 325.9 trillion (US$ 24.5 billion) next year, or 2.19 per cent of Gross Domestic Product (GDP).

This includes Rp 582.1 trillion of Rupiah bonds to be issued in the domestic market, Rp 145.3 trillion of foreign currency bonds and Rp 119 trillion of maturing Treasury Bills (SPN).

Government strategy for its bond issuance this year is to proffer more domestic-based bonds, which reach 80 per cent of total issuance. Luky explained that this strategy is based on the government’s desire to shrink the ratio of foreign currency debt to GDP.

By 2021, the government desires to fix the debt ratio at 36 per cent of GDP. In addition, the issuance of foreign currency debt is to be cut, due to omnipresent global structural risks foreseen in 2018.

As part of setting aside a larger portion for domestic investors, the government targets securing more investments from retail markets in 2018. It plans to increase retail bond issuance up to three from this year’s issue.

Director for the Strategy and Financing Portfolio Scenaider Siahaan said the composition includes an indicated target of Rp 20 trillion worth of Syariah-compliance retail bonds (known as Sukri), Rp 20 trillion of Government Retail Bonds, known as ORI, and the remainder from online retail bonds.

Scenaider explained that the enlarged retail bond issuance this year aims to expand a domestic investor base and thus minimize global risks. Therefore, the share of foreign ownership in government bonds stood at about 39 per cent.

Moreover, in 2018, the government also plans to offer a new instrument, called Sharia Sovereign Bonds, along with Global US dollar Green Sukuk, aiming at expanding the global sukuk investor base. This will use State-Budget funded projects considered to meet ‘Green’ criteria as underlying assets.

The government has assigned green projects developed in 2016 worth Rp 14.4 trillion for refinancing as well as Rp 130 trillion worth of green projects in 2018 for the same purpose.

Currently, the majority of treasury bills are held by foreign investors, which exposes Indonesia to currency volatility should they panic and unload their investments all at once. Therefore, the move to reduce the issuance of foreign currency bonds should help mitigate this risk.

Written by Elisa Valenta, email:





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