JAKARTA (THE JAKARTA POST/ASIA NEWS NETWORK) – Earlier this month, the Indonesian government issued a series of three sovereign US dollar-denominated bonds totaling US$4.3 billion ($6.1 billion).

The three bonds are the RI1030, worth US$1.65 billion with a tenor of 10.5 years, the 30.5-year RI1030 worth US$1.65 billion, and the 50-year RI0470 worth U$1 billion. The last has the longest tenor among dollar-denominated bonds issued in Asia.

Indonesia is also the first country in the region to issue global bonds as a response to the Covid-19 pandemic.

The issuance of the “pandemic bond” series is one of the most visionary measures stipulated in regulation in Presidential Regulation (Perpres) No. 54/2020 on the revised 2020 state budget, in addition to the fiscal stimulus deployment, the budget deficit cap adjustment to above 3 per cent, and the budget refocusing and reallocation agenda.

Extraordinary circumstances require extraordinary measures, as Finance Minister Sri Mulyani Indrawati told a press conference a couple of weeks ago, along with several other ministers: the government is dealing with a pandemic and a funding crisis at the same time.

Looking for additional financing sources through a bond issuance amid the Covid-19 pandemic should also be viewed as an attempt to assess one alternative among the other policies on the table.

The World Bank is also considering the pandemic bond as one of its financing policy options.

Issuing global bonds to support a country’s economy during a pandemic is nothing new. In 2017, the World Bank launched pandemic bonds to provide financial support to the Pandemic Emergency Financing Facility (PEF), a facility it created to channel “surge funding” for developing countries to fight the risk of infectious diseases.

The World Bank’s 2017 issuance of pandemic bonds was considered a success, with subscriptions of over 200 per cent indicating the positive response among investors.

Does the issuance of the latest global bonds, however, mean that Indonesians should panic? The answer is no.

The amount of the global bonds seems huge and the tenors are quite long, but public debt management in Indonesia has improved a lot since 1998. Indonesia has succeeded in keeping the budget deficit below the threshold of 3 per cent for many years.

Also, the debt-to-GDP ratio has remained below or around a mere 30 per cent in 2010-2019. This is far below the 60 per cent limit as stipulated in Law No. 17/2003 on state finances.

With the unexpected additional debt and the bond issuance amid pandemic, the government needs to deliver a clear message to the public that it remains extremely prudent in managing public debt.

At least seven Asean countries have higher debt-to-GDP ratios than Indonesia, while Indonesia’s debt-to-GDP ratio is also low among the other G20 members.

Communicating debt policy in Indonesia is very challenging, however.

First, public debt has always been used as a political issue. Second, some members of the public still believe strongly that adding more debt, regardless of their amount, instruments or policy context and urgency, will somehow bring the country back to its state during the 1998 economic crisis.

The Indonesian government needs to clarify this assumption and educate more people on this issue, so the 1998 crisis can be viewed as a lesson learned rather than a historical policy burden.

One way to reduce asymmetric information on the government’s policy is to analyze response post-launch.

The sales of Indonesia’s global bonds so far show that the market is still confident in Indonesia’s economic management The government needs to convince the public that the issuance of global bonds during the pandemic is a rational decision, because the bonds were issued when the investment ratings were good.

The Japan Credit Rating Agency has given Indonesia BBB+ credit rating, while major rating agencies like S&P, Moody’s, and Fitch have also rated Indonesia’s sovereign credit as investment grade.

Many researchers predict that more countries will rule out unconventional policies during the pandemic. Perpres No. 54/2020 offers flexibility for Bank Indonesia (BI) to purchase the recently issued global bonds from the government.

The Perpres is an example of a policy breakthrough that the government of Indonesia has undertaken by utilising fiscal and monetary policies in addition to issuing the 50-year bond.

In terms of extraordinary measures, the US central bank also instituted similar coordination in 2008, when the Fed purchased trillions of dollars’ in bonds during and after the recession in a bid to stimulate the economy.

On the more extreme and unorthodox end of the spectrum, a government can take the so-called helicopter money policy option.

Helicopter money – or “helicopter drop” – is an expansionary policy that derives from the image of hundreds of dollar bills cascading out of helicopters and falling to the ground. The core of this policy is the monetisation of government spending, which means the central bank printing new money.

Some countries are analysing helicopter money as a policy option during the pandemic, as this unconventional policy can provide funds from the central bank to ease the burden on the economy until the health crisis passes.

This can be done by, for example, providing direct transfers to the public or liquidity assistance to businesses and the financial sector to avoid massive credit crunches and bankruptcies, let alone an economic recession.

The Covid-19 pandemic has hit more than 200 countries, many of which are now looking for additional financing to manage it. Debt is just one option.

Issuing global bonds is not the only policy option on the table for the Indonesian government, but we still need it as a counter-cyclical fiscal policy and preventive measure to mitigate the negative externalities caused by Covid-19.

If the government does not take extraordinary measures under these circumstances, many aspects would suffer much greater impacts.

The writer has a master in international development policy from the Duke University Sanford School of Public Policy. The Jakarta Post is a member of The Straits Times media partner Asia News Network, an alliance of 24 news media organisations.

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