Coronavirus News Asia

Indonesia borrows big to avoid Covid-19 collapse


JAKARTA – Indonesian Finance Minister Sri Mulyani Indrawati and her fiscal policy cohorts seem to have a better grasp of what is needed to keep the country ticking over economically during the Covid-19 crisis than her virus-fighting public health counterparts.

President Joko Widodo, as befits his humble beginnings in the Java hinterland, has made clear from the start his government’s focus would be on the lower echelons of society, both to curb social unrest and to shield vast legions of informal sector workers.

The newly unveiled US$24.3 billion health care, social safety net and business rescue package adds up to a relatively modest 3% of gross domestic product (GDP), pushing up the budget deficit to about 5% and fuelling speculation that more cash injections likely lie ahead.

Only this week, the government also successfully launched a pioneering three-tranche $4.3 billion US dollar Pandemic Bond, divided into 10.5 years (3.9% — $1.65 billion), 30.5 years (4.25% — $1.65 billion) and 50 years (4.5% — $1 billion). 

Managed by Goldman Sachs, Deutsche Bank, HSBC, Citibank and Standard Chartered, it is Indonesia’s first-ever 50-year Asian bond and the first issue of its kind related to the Covid-19 pandemic.

“This is good fiscal management,” says one foreign banker. “Indonesia’s investment-grade credit rating is now up for review and it has only a limited window in which to get deals out the door before it is possibly downgraded.”

A mock 1,000 Rupiah coin at Bank Indonesia’s headquarters, Jakarta, November 17, 2016. Photo: AFP

International agencies have already begun downgrading their ratings of Indonesian companies, particularly in the property, manufacturing and mining sectors as questions are raised over their ability to pay back debt amid the Covid-19-driven downturn.

“Refinancing risk is a growing reality for numerous Indonesian issuers,” Standard & Poor’s  Global Ratings credit analyst Xavier Jean said last week. “Funding sources are becoming increasingly scarce for small issuers as Covid-19, a depreciating rupiah and low commodity prices drive away foreign capital providers.”


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