Bank Indonesia now owns more of nation's debt than global funds

[SINGAPORE] Bank Indonesia's ownership of the nation's sovereign debt has surpassed that of global funds for the first time, highlighting the central bank's growing role in helping to finance public spending.

The central bank has boosted its holdings of government bonds to 23.1 per cent of the total outstanding amount, versus 22.9 per cent owned by overseas investors, according to official data compiled by Bloomberg. Bank Indonesia held as little as 9.9 per cent a year ago before stepping in to help the government fund its pandemic relief efforts.

The latest figures may sharpen the focus on the central bank's bond-buying program, a tool that some say is likely to erode its autonomy and reduce the government's fiscal discipline. While the debt purchases were once touted as a one-off emergency move, the authorities are now weighing an extended role for Bank Indonesia to finance government spending.

The increase in holdings is "a reflection of the greater role that Bank Indonesia has been playing in stabilising the government debt market," said Wellian Wiranto, an economist at OCBC in Singapore. "It is also one reason why we would continue to watch the talk about BI law reform in earnest, given the provision to make the bond purchases less ad hoc and more formalised." Foreign ownership of rupiah sovereign debt has dropped from as high as 39 per cent last year as rising Treasury yields reduce the allure of emerging-market assets. Indonesia's government has sold fewer bonds than its target in its last five auctions of non-Islamic debt.

Still, Societe Generale SA says Bank Indonesia's increased presence may lend a greater stability to financial markets. The rupiah is among Asia's most volatile currencies and policy makers routinely step in to smooth out the fluctuations.

"Gradually, Indonesian government bonds will be getting less correlated with any external selloff such as that in U.S. Treasuries," said Kiyong Seong, an Asia rates strategist at Societe Generale in Hong Kong. "Such a case is already being observed in India."

BLOOMBERG