Government Cuts Planned Debt Issue By 26%
Indonesia will cut its remaining 2010 debt issue by 26 percent, including scaling back a global sukuk, or Islamic bond, offering after lowering its deficit forecast in light of expected faster growth and stronger revenue. The move to trim Rp 15 trillion ($1.7 billion) off the Rp 58 trillion worth of debt still to be issued spurred longer-dated bond prices as investors bet the deficit cut could lead to a much-sought-after investment-grade credit rating.
Foreigners have bought a record amount of Indonesian bonds this year, drawn by the country’s robust economic growth, hopes of a credit upgrade and expectations that the rupiah will continue to appreciate. The government had a budget surplus in the first half, so it would be reluctant to push a huge global issue this year. The government has raised about Rp 120 trillion in bonds this year, or two-thirds of its original target of Rp 178 trillion.
Its higher-yielding local currency sukuk has seen less demand than conventional bonds, with the Finance Ministry again raising less-than-targeted in an auction on Tuesday because of fears the sukuk market lacks liquidity. The global sukuk will be downsized because up to now the government has still booked a budget surplus. Indonesia has cut its financing by about Rp 37 trillion ($4.1 billion) this year — a cut of 28 percent, including the debt issuance cut — because the government now expects a budget deficit of just 1.5 percent of GDP, versus an earlier projection of 2.1 percent. The cut is equivalent to 3.3 percent of its planned expenditure.
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