A government’s debt management office (DMO) has two key objectives: reduce borrowing costs while keeping risks at acceptable levels, and support the development of the domestic financial markets. The Indonesian DMO, under the leadership of director general of budget financing and risk management Luky Alfirman, has not only done these exceptionally well, but has also taken things up a notch over the past year.
Its debt issuance strategy has been clear from the start — to frontload all the non-rupiah bond deals in the first half of 2019, while holding domestic auctions for local currency debt regularly, alternating between conventional and Islamic bonds every week.
“2018 was a very challenging year for us,” Alfirman tells GlobalMarkets. “The US Federal Reserve increased rates four times last year, while Bank Indonesia increased rates by 175bp. We were living in a high interest rate environment last year. But in 2019, we had some good news.
“On the global front, the combination of the Fed’s dovish policy and ECB quantitative easing lead to inflows into emerging markets including Indonesia. On the other hand, the Indonesian domestic economy looked quite robust, leading to an upgrade from S&P.”
Despite that uplift, Alfirman and his team were very much aware of the volatility plaguing global markets, making the DMO vigilant about its fundraising. “To cope with uncertain and volatile markets, our strategy is an opportunistic one,” adds Alfirman. “We are always looking at what happens in the market and finding opportunities. And if the market is conducive, we always upsize our issuance.”
That flexible approach has been on show in 2019. The country, rated Baa2/BBB/BBB, kicked things off with a $3bn triple-tranche deal in December 2018 to meet this year’s fundraising targets, staggering out its maturities with a five year, 10 year and 30 year tranches.
It followed up this transaction with a $2bn sukuk in February that featured a green portion, a $1.6bn equivalent Samurai bond in May and lastly, a $1.6bn dollar and euro combo deal in June. The June transaction was particularly impressive as the government sliced pricing across both the tranches.