JAKARTA (TheInsiderStories) –Indonesian Finance Ministry officially issued the Indonesia Retail Savings Bond (SBR) 003 on Monday (14/05), which is aimed to increase the number of young local investors’ participation in financing the state budget.
Government was set to commence the offering period of its SBR through an online platform with targets up to Rp5 trillion (US$357.14 million), in a move to reach out to young people as it plans to expand Indonesia’s investor base.
The SBR003, will be sold online from May 14 to 25 with a coupon rate 6.8 per cent per year.
The government has assigned 19 sales agents, consisting of 18 banks and one securities firm. Sales agents also conduct road shows in 35 cities around the archipelago to promote the issuance, primarily in several cities of eastern part of Indonesia, including Ambon in Maluku and Jayapura in Papua.
Indonesia is currently dealing with the lack of infrastructure spending in the State Budget, considering that infrastructure development in Indonesia is considerably behind the average of other countries in Asia.
The low number of domestic retail investors is one of the reasons why the Indonesian financial market is highly vulnerable to global shocks.
For the record, foreign portfolio ownership of government bonds is increasing steadily. The foreign investor portion of government bonds has reached 46.54 percent (Rp793.47 trillion) of a total of Rp1,704.75 trillion.
If there is global turmoil, then there emerges serious risks of outflows, rocking the country’s financial markets, and weakening the rupiah exchange rate as well as yields.
Over the past few weeks the Indonesian rupiah has been under pressure as 10-year U.S treasury yields passed beyond the 3 per cent level. Meanwhile, an improving U.S economy gives rises to expectations that the Federal Reserves will raise its benchmark.
Foreign investors have sold a net $1.1 billion of sovereign bonds last month, on top of $2.7 billion of stocks this year, data compiled by Bloomberg show. Foreign investors hold around 38.4 percent of local-currency bonds.
Government has repeatedly warned that Indonesia should be aware of the high number of foreign investors holding debt portfolios.
On the one hand, the keen interest of foreign investors indicates that they are optimistic about economic prospects in Indonesia. However, on the other hand, this gives rise to vulnerabilities, due to the above-mentioned risk of outflows in times of global panics. For this reason, the government has been continually pursuing efforts to increase the number of domestic investors in Indonesian bonds.
Unfortunately, pumping the popularity of bonds among domestic investors – particularly retail investors – is still problematic for a number of reasons, of which the main one is concerned with the lack of knowledge and trust among Indonesians about such investment instruments.
Furthermore, retail investors are still highly concentrated in the western part of Indonesia, especially Jakarta (55 percent of the country’s total). In the eastern part of Indonesia this ratio is only 10 percent.