Indonesia unveils $40bn bond scheme to fund recovery from pandemic

JAKARTA: Indonesia's central bank has agreed to buy 574.59 trillion rupiah ($40 billion) of government bonds this year and rebate most of the yield to help fund the economic recovery, Finance Minister Sri Mulyani Indrawati said on Monday.

The bond-buying programme will help finance the 2020 fiscal deficit, which is forecast to reach 6.34% of GDP this year, as the government steps up spending to fight the virus outbreak while revenue drops.

Some 397.56 trillion rupiah of bonds will finance public interest programmes and the cost will be fully borne by the central bank, Indrawati said. The rest will carry interest rates below the central bank's 3-month reverse repurchase rate and will support recovery schemes for some businesses, she said.

"This policy is aimed at invoking confidence in our economic recovery, healthcare response and to create more certainty," Indrawati said.

The bond scheme for public interest programmes is a one-off policy, the debt will have long maturities and be tradeable, which will allow Bank Indonesia (BI) to utilise them for its monetary operation, she added.

BI Governor Perry Warjiyo said the scheme will have a small impact this year on inflation, which hit a 20-year low in June due to weak demand, while BI will continue to assess the impact on future inflation and rupiah exchange rate.

Warjiyo added that the scheme will not have any implication to monetary policy.

"Our capital is strong and it will not affect how BI conducts our monetary policy according to the framework that we have established for years," he said.