Indonesia is planning to sell bonds to its citizens living abroad as Southeast Asia’s largest economy seeks to expand its funding pool and reduce its dependence on foreign fund inflows for financing a budget deficit.
The government is studying the so-called “diaspora bonds,” which would target non-residents from migrant workers to students, said Luky Alfirman, director-general for financing and risk management at the Indonesian Ministry of Finance.
Details of the type of debt instrument, its tenor, denomination and transaction costs are being discussed, he said.
The diaspora bonds are part of a plan to reduce high foreign ownership of Indonesian securities that makes the nation one of the most vulnerable emerging markets.
The government raises about US$10 billion annually from overseas selling US dollar, euro and yen-denominated securities and sukuk.
The government also sees “enormous” potential in boosting domestic retail ownership of sovereign bonds from about 3 percent, Alfirman said.
“Our migrant workers also need an investment instrument,” Alfirman said in an interview in his office on Thursday last week.
“We can set the minimum purchase at 1 million rupiah [US$71] for them, just like the model we use for our retail savings bond” and securities can be in denominated in dollars or rupiah, he said.
While Indonesians in the Middle East might prefer sukuk and those in Japan or the US might like the conventional securities, authorities are still working to “find the best possible scheme,” Alfirman said.
Indonesian expats might total about 8 million, official data show.
While Indonesia needs portfolio investment to finance its development, high foreign ownership makes the country vulnerable to capital outflows during periods of volatility, Alfirman said.
Foreign ownership of rupiah-denominated sovereign notes, which make up more than 80 percent of the bonds sold annually is at more than 39 percent, official data show.
“The government plans to gradually decrease foreign ownership in bonds not by limiting it, but by expanding domestic the investor base,” Alfirman said, adding that the ministry would stick to its strategy of issuing more rupiah-denominated bonds to mitigate risks coming from global volatility.
With the budget deficit forecast to widen to 1.93 percent this year, the government might issue additional bonds or seek loans to finance the shortfall, Alfirman said.
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