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

JAKARTA (TheInsiderStories) –  Indonesian government planned to sell US dollar and Eurobonds this week as pre-funding program to finance the 2020 State Budget Deficit. The dual-currencies bond get rating Baa2 from Moody’s Investors Service (“Moody’s”) has
assigned Baa2 ratings.

The proposed senior unsecured US dollar and  euro-denominated notes to be issued by the government (Baa2 stable) have maturities ranging from 10-30 years  for the Greenback notes and up to 7 years for the Euro notes.

Last year, Indonesian has sold the government bonds with total amount US$750 million in RI0929 series and €750 million in RIEUR0926 series. This is Indonesia’ third dual-currency bonds following 2017 and 2018.

Maturity for the US Dollar bond is 10 years and the Eurobond is 7 years. Coupon for the Eurobond is 1.45 percent while the US Dollar bond is 3.4 percent. Furthermore, the yield is set as 1.487 percent and 3.45 percent, respectively.

The US dollar bonds is smaller than 2018’ dual-currency issuance worth of $1 billion. At the time, the coupon rate and the yield at 4.1 percent and 4.13 percent, respectively.

The bond has Baa2 from Moody’s, BBB from Standard & Poor’s, and BBB from Fitch. Joint book-runners for the transaction are Citigroup, Credit Agricole CIB, Deutsche Bank, HSBC, Mandiri Sekuritas, and Standard Chartered Bank. Meanwhile, PT Bahana Sekuritas and PT Trimegah Sekuritas Indonesia Tbk (IDX: TRIM) are the co-managers.

In the 2020 State Budget, the government set the deficit target Rp307,2 trillion or 1.76 of the Gross Domestic Products. Beside from debt, the government also prepared Rp10 trillion ($714.28 million) as a buffer for fiscal risks to overcome the budget deficit in 2020, rising 43 percent from this year’ allocation worth of Rp8 trillion.

Askolani, director-general at the finance ministry said the buffer can be used in any of the government’ macroeconomic assumptions misses forecasts, affecting revenue collection or ballooning subsidies.

“If the deficit rises, we can use it to make sure it stays below 3 percent,” said the director by adding the buffer is also allocated considering the challenges of projected tax revenues will be increasingly challenging next year.


According to the terms and conditions available to Moody’s, the notes to be issued under the government’ existing US$10 billion shelf program filed with the Securities and Exchange Commission (SEC) in the United States will  constitute direct, unconditional and un-subordinated obligations of the government of Indonesia.

The notes will rank paripassu with all of the country’ current and future senior unsecured external debt. The proceeds of the
notes are intended for general budgetary purposes, including for
financing requirements. The rating mirrors the Indonesia’ long-term issuer rating of Baa2 with a stable outlook.

Baa2 rating is underpinned by policy emphasis on macroeconomic
stability that increases its resilience to shocks. The sovereign’
credit profile is supported by narrow fiscal deficits and low government debt ratios.

The large size of its economy and healthy and stable growth prospects act as credit supports. Credit challenges include low revenue mobilization, and a reliance on external funding. The stable outlook reflects balanced risks at Baa2.

It incorporates downside risks from political challenges to further implementation of broad economic, fiscal and regulatory reforms. Because they seek to address entrenched constraints and go through various institutional hurdles, we expect effective reforms to proceed relatively slowly, with potential delays to occur.

The stable outlook also takes into account upside risks from a potential improvement in competitiveness as a result of effective reform implementation.

Environmental risks are a material credit consideration for Indonesia. Coastal flooding and rising sea levels are a particular concern, with widespread implications, including for agricultural production and food  security.

Earlier this year, the government announced its plan to relocate the country’ capital city to Kalimantan from Jakarta, in part because the existing capital is particularly vulnerable to rising sea levels and its associated effects. Separately, demand for arable land and intensive commercial logging have led to soil erosion and deforestation.

In addition, given its geographical location, Indonesia is subject to
considerable seismic activity that are manifested in natural disasters
such as earthquakes, tsunamis and volcanos.Social considerations exert limited influence on Indonesia’s credit profile.

Demographics act as a credit support, given a sizeable and growing working age population. However, Indonesia’s education quality and spending fall behind global standards, therefore, the government plans to increase fiscal spending to improve the quality of human capital.

Moreover, wealth is concentrated and Indonesia’s rankings on
wealth inequality indices are weak. Governance considerations relevant to Indonesia’s credit profile are  captured in our assessment of institutional strength. Although Indonesia lags peers in terms of Worldwide Governance Indicators with rule of law representing particular challenges, percentile rankings point to steady  improvement.

Moody’s also rated, the stable outlook indicates that rating changes are unlikely in the  foreseeable future. Over time, indications that fiscal policy measures can durably and significantly raise government revenue would put upward pressure on the

Higher revenue would enhance fiscal flexibility and provide more
direct financial means for the government to address large social and  physical infrastructure spending needs.

An upgrade would also result from further progress towards achieving  stronger growth potential, commensurate with the country’ population growth and income levels, including through a deepening of financial markets and improved competitiveness. A reduction in external vulnerabilities and improvements in institutional strength would also add upward pressures.

This assessment would be supported by a reduction in the government’s reliance on external debt, or tangible evidence that
reforms foster investment, competitiveness or sustained increases in revenues.

Downward pressure would arise if evidence indicates that the
strengthening of Indonesia’s policy framework and institutions stalls or reverses. Secondly, Moody’s concluded that the prospects of medium-term broadening of the revenue base are limited, indicating limitations to  policy effectiveness and posing continued constraints to economic growth.

And third, state own enterprises‘ financial strength materially worsened pointing to a rising likelihood for material contingent liabilities to crystallize on the government’ balance sheet.

US$1: Rp14,000

Written by Staff Editor, Email: