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Asian Bond Market Initiative to support Infrastructure Development in the Region
Irfa Ampri Vice Chairman Fiscal Policy Agency for Climate Change Finance and Multilateral Policy
Indonesia’s Minister of Finance
To be presented at Reinventing Bretton Wood Institure Conference Moscow, 14 February 2013
Ministry of Finance
The Republic of Indonesia
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Outline
I. Background
II. Asian Bond Market Initiative (ABMI)
III. Mechanism
IV. Asian Bond Markets Overview
V. Recent Development
VI. New Roadmap
VII. Infrastructure Bonds
VIII. Credit Guarantee and Investment Facility
IX. Indonesia Debt Management Strategy
X. Debt Performance
XI. Challenges
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II. Background
The development of Asian Bond Market Initiative (ABMI) is
initially triggered by 1997 Financial Asian Crisis. It also
address issues of:
1) Lack of well developed bond market in Asia
2) Country over-reliance on bank borrowing
3) Maturity mismatch: financing long-term investment
through short-term borrowing
4) Currency mismatch: most foreign debt dollar denominated
and not local currencies
5) Absence of long-term local currency funding source of
financial vulnerability in the region
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II. Asian Bond Market Initiative
1. Asian Bond Market Initiative (ABMI) aims to:
– Enable private sectors in Asia to raise and invest long-
term capital without maturity and currency risks
– Facilitate access to market via wider variety of bond
issuers in Asia
– Develop efficient and liquid bond markets in the region
– Foster a high degree of financial independence in Asia
– Support infrastructure development in the region.
2. ABMI was endorsed by the ASEAN+3 Finance Ministers
Meeting in August 2003 in Manila, Philippines
3. Voluntary basis participation. Participation of countries in
the ABMI is on a voluntary basis
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III. Mechanism
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IV. Overview - Asian Bond Local Currency
Size of Asian Local Currency Bond (USD billion)
Source: ADB Bond Monitor
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IV. Bond Market Overview
Country Size and Composition of LCY Bond Market (% of GDP) – as of Q3-2012
33,7 37,6
10,9 29,4
66,9
32,9 53
62,2
14,7
198,8
11,7
33,6
2,1
75,2
44,1
5,1
37,8 15,7
1,2
18,5
0
50
100
150
200
250
China HongKong
Indonesia Korea Malaysia Phillipines Singapore Thailand Vietnam Japan
Corporate Government
Source: ADB Bond Monitor
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V. Recent Development
1) Asian Bond Online. Established in 2004 in cooperation
with ADB to provide latest information about bond market in
the region.
2)The Credit Guarantee and Investment Facility (CGIF).
Established in November 2010 to support the issuance of
local currency denominated corporate bonds in the region
by providing credit enhancement.
a. Capital US$ 700 million, and start to list companies in
ASEAN to be invested
3)ASEAN+3 Bond Market Forum (ABMF). Established in
September 2010, as a common platform to foster
standardization of market practices and harmonization of
regulation relating to cross-border bond transaction in the
region. 8
VI. The New Roadmap
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VII. Infrastructure Bonds as Alternative Debt Instruments
Infrastructure (Revenue) Bonds. Bond issues for infrastructure investment with
source of repayment stemming from the proceeds of the projects.
Investment decision do not depend on credit rating issuers, but on the profitability of
the projects
It is expected that the study under the ABMI will suggest new types of debt
instruments and associated infrastructure project..
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VIII. The Credit Guarantee and Investment Facility (CGIF)
CGIF is to support the issuance of corporate bonds in ASEAN+3 by
providing credit enhancement to allow eligible issuers to access local
currency bond markets.
The CGIF was established in November 2010 with initial capital of
USD700 million
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IX. Indonesia Debt Management Strategy
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1. Optimizing debt financing from the domestic market through
the issuance of government securities and disbursement of
domestic loan;
2. Maintaining levels of domestic government securities market
liquidity by providing a sufficient number of bids and
increasing transparency and predictability.
3. Continuing to diversify debt instruments in order to obtain
flexibility in choosing the instruments that are more cost-
efficient and minimal risk;
4. Improving coordination with the monetary authorities and
the Indonesia Financial Services Authority, particularly to
promote financial deepening;
5. Implementing the Asset and Liability Management (ALM)
framework in debt management operation
Operational Debt Strategy
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1. Fulfilling the state budget debt financing needs at a low cost and
measurable risk
• Prioritizing issuance of Government Securities in domestic market
• Issuing global bond in the minimum amount
• Coordinating with the cash management within the ALM framework in
order to meet the financing and cash needs
2. Developing the domestic government securities market
• Providing sufficient amount of government securities in order to maintain
market liquidity
• Maintaining regular issuance of Government Securities
• Increasing transparency and predictability.
3. Improving access to public participation (financial inclusion) through
the issuance of retail bonds
• Increasing the amount of retail investors who have limited investment
portion.
• Increasing investment horizon of the investor
4. Improving the structure of government securities portfolio through
buybacks and debt switch to improve market liquidity, market
stability, and portfolio risk.
Debt Financing Instruments
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Government Debt
Securities
T-Bills
Government Bond
Financing
Instrument
Government
Securities
Loan Foreign Loan
Domestic Loan
Sovereign Sukuk/
Sukuk Negara
State Owned Asset Based
Services Based
Project Based
• Islamic Fixed Rate (IFR)
• Retail Sukuk (SR)
• Global Sukuk (SNI)
• Islamic T-Bills (SPN-S)
• Hajj Fund Sukuk (SDHI)
• Project Financing (PFS)
• Project Underlying (PBS)
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Policies to Address and Mitigate Sudden Reversal
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X. Debt Performance
Growing Domestic Bond Market
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A Robust Debt Metrics
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Yield continues to decline with maintained liquidity
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Foreign ownership mostly dominated by high quality long-term investor
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XI. Challenges
1) More debt instruments for financing infrastructure, e.g
derivative, swap and repo market
2) Improving credit guarantee and investment mechanism for
corporate sector
3) Increasing liquidity of bond market
4) Development of securitized instruments
5) Harmonization of cross-border market regulation
6) The risk of sudden capital outflow.
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Thank you
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