Government Bonds

Government debt securities are offered in four forms: (i) promissory notes issued to Bank Indonesia, (ii) hedge bonds, (iii) fixed-rate bonds, and (iv) variable-rate bonds.

Promissory notes are zero coupon perpetual obligations of the Government to Bank Indonesia (BI) and are not traded on the market.

Hedge bonds are non-tradable bonds issued to banks to hedge their Net Open Positions (NOP). Hedge bond tenors are between 3 months and 3 years, with a coupon at the 3-month SIBOR rate plus 2%. The coupon is payable quarterly and linked to the IDR/USD exchange rate.

In September 2002, the Government Debt Securities Law established a legal framework for issuing both domestic and external debt securities. The Ministry of Finance (MOF) handles T-bond issues. Since 2003, MOF has issued bonds of various maturities with both fixed and floating rate coupons. The goal is to create a meaningful government yield curve.

In May 2007, Indonesia issued its first treasury bills (T-bill) worth IDR2 trillion with a 12-month tenor. T-bill issuance is expected to maintain bond market stability and bolster liquidity, while funding the government budget deficit. Prior to the advent of T-bills, the Sertifikat Bank Indonesia (SBI) was the main tool used by BI for open market operations. SBIs were issued by BI to control the liquidity of the banking system, and were issued in IDR with 1- and 3-month tenors. For the moment, SBIs remain the most actively traded money market instrument on the Indonesian market. But Indonesia plans to reduce SBI issuance and replace them with T-bills as a main tool for open market operations.

Government retail bonds are bonds with a required minimum purchase of only IDR5 million, compared with the normal government bond minimum of IDR1 billion. The government offered its first retail bonds in July 2006.

Corporate Bonds

The Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK) is responsible for the registration of corporate debt instruments. Corporate issues must be rated by Credit Rating Indonesia (Pemeringkat Efek Indonesia, or PEFINDO). Audited financial statements and legal audit reports are required.

Corporate bonds listed on the Indonesia Stock Exchange (IDX) are at the link below. IDX uses the Fixed Income Trading System (FITS) for bond trading and processing.

For additional information on IDX bond trading, refer to the section on Market infrastructure> Exchanges and Trading Platforms.


Islamic Instruments

Shari’a securities are structured as revenue-sharing instruments conforming to shari’a principles, which do not recognize interest payments. These are customarily traded on the money market and capital market, including drafts, shari’a bonds, and shari’a mutual fund certificates.

Further details on shari’a financial operations can be viewed at the BI blueprint and regulation links below.

In April 2008, the government approved the Islamic shari’a debt bill. The passage of the bill will allow the government to issue Islamic bonds as well as provide a new source of funding to help finance its budget deficit.