The government will stick with its plan to resort to the debt market to finance this year’s national budget deficit as the unused funds left over from the 2008 budget are to be put towards a proposed fiscal stimulus program, a senior official at the Ministry of Finance said on Wednesday.
Indonesia recorded a budget deficit of only Rp 4.2 trillion, or 0.1 percent of projected gross domestic product, in 2008, far below the Rp 94.5 trillion, or 2.1 percent of GDP, that had been predicted in the revised budget.
Basing its calculations on the higher figure, the finance ministry borrowed Rp 55.5 trillion on the debt markets, with most of the money being the proceeds of government bond sales. Subsequently, as a result of the budget deficit coming in much lower than expected, the country was left with funds amounting to Rp 51.3 trillion.
The government is predicting a deficit of 1.0 percent of GDP in 2009, the equivalent of Rp 51.3 trillion.
“We will keep selling bonds this year, with a net proceeds target of Rp 54 trillion,” said Rahmat Waluyanto, the director general of debt management at the Finance Ministry, adding that the government would diversify its debt instruments and sales methods to anticipate likely weak demand in the debt markets amid the global recession.
As to how the government will use the carried-over funds, Rahmat said: “I can’t give you much detail at present, but, as you know, some of the money will be used to finance the fiscal stimulus package.”
The government announced a plan on Monday to pump Rp 50.5 trillion ($4.64 billion) into the economy in the form of a fiscal stimulus package to ward off possible major job cuts as international demand for Indonesia’s products dissipates.
Part of the package, worth Rp 12.5 trillion — which will take the form of value-added tax and import duty exemptions for a number of sectors — will be funded by the national budget, while another Rp 38 trillion, made up of the carried-over funds from 2008, will be used to pay for labor-intensive programs and provide support to the private sector.
But the government is still assessing which sectors are to receive incentives and assistance, saying that further details will be announced within the next two weeks.
Rahmat explained that in diversifying its debt instruments, the government will issue the country’s first Islamic retail bond, or sukuk, to retail investors in the domestic market in February, and its first yen-denominated bond, or Shiboasai, in the middle of 2009.
Indonesia will employ Japan-based financial firms to sell the bonds, he said, as Indonesian government bonds are still regarded as being below investment grade. “So, we need people to provide assurances, people to make the arrangements. Preferably, they should come from Japan.”
One of the reasons the government is considering issuing yen-denominated bonds is because Indonesia’s exposure to the Japanese currency is quite significant, Rahmat said, adding that some 19 percent of the country’s total foreign debt is in yen. If the yen-denominated bonds are successful, he said, the government will attempt to refinance its yen-denominated debt.
As another example of diversification, Rahmat said the Finance Ministry would also offer short-term debt papers to local governments enjoying budget surpluses as a result of windfall profits they earned when commodity prices hit record highs in the first part of 2008.
Rahmat did not rule out the possibility of seeking standby loans from multilateral agencies and international donor countries should the government experience difficulties in selling its debt papers, given that the global recession is expected to persist throughout 2009.
