Indonesia nears deal with central bank on deficit funding

Indonesia's central bank may buy billions of dollars of sovereign bonds at zero interest, or below its benchmark rate to help the government finance a wider deficit arising out of stimulus measures to counter the fallout of the coronavirus pandemic.

Bank Indonesia may bear the full cost of an expanded health care and social safety net budget of 397.6tr rupiah ($27.6b) by buying government bonds at zero interest rate, Finance Minister Sri Mulyani Indrawati told lawmakers in parliament Monday. Discussions are also ongoing for the monetary authority to pick up about 123.5tr of bonds at 1% discount to the seven-day reverse repurchase rate to help micro-, small and medium enterprises, she said.

The central bank may receive the benchmark rate on bonds bought to assist non-SME corporates, according to Indrawati's presentation in parliament. The government will bear the full cost of extending 329.3 trillion rupiah in stimulus to other sectors of the economy, it showed.

The finance ministry expects to reach an agreement with the central bank on the composition of the socalled burden sharing this week that may involve private placement of bonds with the monetary authority and market auctions, Indrawati said. The central bank's interest burden from funding the deficit is seen at 37 trillion rupiah annually, or 54.8% of the total cost, she said.

The central bank is ready to share the burden of financing the budget deficit, Governor Perry Warjiyo told the lawmakers.

Indonesia is rushing to raise funds to respond to the pandemic that's battered Southeast Asia's largest economy and rendered millions jobless. Authorities have announced almost $50 billion in fiscal incentives to cushion the economic and health blow, scrapping a legal cap of 3% on deficit introduced in the wake of the Asian financial crisis.