Indonesia has taken a creative approach to funding its response to the coronavirus, leaning on the central bank, multilateral lenders and international investors. But the country has stopped just short of officially billing its bonds as pandemic response deals.
Indonesia’s government has made drastic changes in response to the coronavirus, abandoning a plan to relocate the capital from Jakarta to East Kalimantan, removing a 3% budget deficit cap for the next three years and committing Rph695tr ($47.17bn) of fiscal stimulus, worth around 4% of the economy. That has led to a sharp rise in funding needs at the sovereign, forcing the country’s funding team to think on their feet.
“We have used all available government resources,” said Luky Alfirman, director general of budget financing and risk management at Indonesia’s ministry of finance. “We have used an excess cash surplus accumulated in previous years. We have sold bonds to the central bank. We have tapped the international markets. We also worked together with our partners, getting bigger loans than we have in previous years.”
The move to sell bonds to Bank Indonesia, the central bank, has been the key tactic to increase available funding onshore.
Tapping the market
Indonesia has also tapped the offshore bond market multiple times. The country raised around $3bn between dollar and euro tranches in January, before the real impact of the pandemic was apparent. It followed that with a $4.3bn deal in April, a $2.5bn green sukuk in June and a ¥100bn Samurai bond in July.
The April bond was the closest Asia has come to having a proper pandemic response bond from a sovereign, but Indonesian funding officials stopped just short of giving it an official label, which would have meant appointing third-party opinion providers and setting out clearly the use of proceeds.
The country is also expecting a surge in loans from overseas. Indonesia typically obtains around $2bn of loans from a mix of policy lenders, including multilateral institutions.