Indonesia's 10-year government bond yields are currently around 6.89 percent, or the highest among Asian nations. On the one hand, this makes Indonesian bonds attractive to investors but on the other hand it becomes more costly for the government. How come Indonesian bond yields remain high?
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Today's Headlines Government Bonds
The Finance Ministry of Indonesia is conducting a rupiah-denominated Government Debt Securities (SUN) auction on Tuesday (27/09). The auction opened at 10:00 am local Jakarta time and will close at 12:00 pm. The indicative target of the government is set at IDR 12 trillion (approx. USD $923 million), while the maximum target is set at IDR 18 trillion (approx. USD $1.4 billion). Proceeds are used to finance the Revised 2016 State Budget.
The government of Indonesia has expressed its concern about rising foreign debt. Indonesian President Joko Widodo summoned Chief Economics Minister Darmin Nasution for a meeting to express his concern about the issue. In particular the high degree of foreign ownership of Indonesian securities needs attention as foreign ownership of government bonds has reached a new record high. Therefore, analysts say Indonesia needs to optimize government revenue (for example by reforming the nation's tax system) rather than depend on loans and bonds.
Although a huge amount of debt paper will mature in 2016, there is few concern that the Indonesian government and the nation's private companies will fail to meet their debt obligations. Per 17 February, total outstanding debt paper that is to mature in 2016 stands at IDR 320.9 trillion (approx. USD $23.8 billion), consisting of IDR 268.1 trillion (approx. USD $19.9 billion) of government bonds (Surat Utang Negara or SUN) and IDR 52.8 trillion (approx. USD $3.9 billion) of private sector corporate bonds. Why are there no major concerns about Indonesia's debt situation in 2016?
The Indonesian government will engage in front loading, issuing 61 percent of next year's total planned state bonds - worth IDR 532.4 trillion (approx. USD $38.6 billion) - in the first half of 2016. Proceeds are used to finance the 2016 State Budget. Earlier, on 2 December 2015, the government had already sold USD $3.5 billion worth of bonds to cover a shortfall in the 2016 State Budget, deliberately ahead of the possible US interest rate hike in mid-December (as this move is expected to reduce investor appetite for emerging market assets).
In order to tackle an estimated shortfall of more than IDR 260 trillion (approx. USD $17.5 billion) in the 2015 State Budget, the Indonesian government starts selling government bonds to Indonesian retail investors today (21/09). In the original 2015 State Budget the government projected a deficit of 1.9 percent of the country’s gross domestic product (GDP). Recently, this figure was raised to 2.23 percent of GDP due to disappointing tax revenue amid weak economic growth.
Foreign debt of Indonesia totaled USD $264 billion per December 2013. Based on data from Statistics Indonesia, 46.8 percent of this total debt was accounted for by the public sector, while the remaining 53.2 percent was private sector debt. On a year-on-year (yoy) basis, growth of Indonesia’s total debt slowed to 4.06 percent in the last month of 2013. One year earlier this growth was significantly higher at 12.0 percent. Indonesia’s level of foreign debt is still safe at 30.2 percent of GDP in the fourth quarter of 2013.
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