The impact of COVID-19 colored the Indonesian economy faster than expected, said the government officials - Photo by Finance Ministry Office

JAKARTA (TheInsiderStories) – Indonesia will raise the state bonds issuances around Rp999.6 trillion (US$62.47 billion) in this year from the initial targets Rp389.4 trillion, said finance minister yesterday (04/06). The funds will use to finance the country’ efforts to combat the health crisis and economic turmoil caused by the COVID-19.

The document submit by finance ministry office to the parliament showed, nearly Rp450 trillion will releases as “pandemic bonds” and the regular bond sales target raises by Rp160.2 trillion to Rp 549.6 trillion to address the widening budget deficit, which could reach 5.07 percent of gross domestic product (GDP).

“The government’ first line of financing will come from an endowment fund and surplus cash but it will not be enough. Therefore, we need to issue government bond to look for the best financing sources. We will be very careful in navigating these uncharted waters,” said finance minister, Sri Mulyani Indrawati, during hearing with XI Commission of House of Representatives on Monday.

The plans is risky caused based on Bank Indonesia (BI) data, foreign investors have pulled out of the tradable government bond market around Rp130 trillion. The demands for Indonesia’ debt papers has also declined sharply in March.

On Feb. 18, the government saw Rp 127 trillion in bids and absorbed Rp19 trillion. But in March 31 the demand for the state bond only Rp34 trillion and absorbed Rp22 trillion with higher prices.

But, under the new Government Regulation in Lieu of Law Number 1 of 2020 issued last week, BI is now permitted to buy government bonds in the primary market if the market not absorbs the state bond. THe minister, assured the government will be very transparent to maintain the credibility of the country’ fiscal and monetary policies.

So far, the central bank has purchased Rp172.5 trillion in government bonds, including Rp 166.2 trillion from foreign investors in the secondary market. Since early 2020, the financial markets have been hit by the virus outbreak, with foreign investors having sold Rp148.76 trillion in Indonesian assets, including Rp135.08 trillion in government bonds and Rp 9.71 trillion in stocks, BI data shows.

Last week, Indrawati stated, the government widened the 2020 State Budget deficit from 1.76 percent to 5.07 percent of GDP to help the country to combat the COVID-19. The minister also said, Indonesia’ economy would only grow by 2.3 percent in the second and third quarters, then it would improve in the fourth quarter.

“For Indonesia, at this time, our scenario the economic growth could dropped at 2.3 percent. This is the impact of the most severe COVID-19 or the most severe occurred in the second quarter of this year and will probably continue in the third quarter and may start to improve somewhat in the fourth quarter,” she adds.

The impact of the pandemic made many countries combine policies to deal with virus and a large economic stimulus. This is caused by the escalation of its spread which also has an impact on global economic growth and Indonesia.

“The steps taken by all countries usually consist of fiscal instruments, whether they provide tax incentives a know tax breaks, provide additional spending in general in the field of health and social assistance, and also help the business world including maintaining the financial system so that it does not experience a potential crisis,” said Indrawati.

She continued, her ministry together with BI, Financial Service Agency and Indonesia Deposit Insurance have also carried out forward-looking assessments based on various contingencies or the possibility of being worse than the current or calculated baseline conditions.

Her office will work as much as possible to ensure the availability of the budget to accelerate efforts to overcome this crisis, while maintaining the health and sustainability of the country’s finances through fiscal policy and the National Budget to respond to COVID-19 events by refocusing programs, reallocating budgets and providing stimulus for health goals, protecting the public and business support.

US$1: Rp16,000

by Linda Silaen, Email: linda.silaen@theinsiderstories.com