Gov’t, Bank Indonesia Agree on Burden-Sharing Scheme
Date 7 Juli 2020
The Government and Bank Indonesia (BI) have agreed on a burden-sharing scheme for Government Securities (SBN), Minister of Finance Sri Mulyani has said.
The Minister went on to say that the budget for COVID-19 handling is Rp695.2 trillion, including Rp397.56 trillion for public goods, which cover the health sector (Rp87.55 trillion), social protection (Rp203.9 trillion) and labor-intensive programs, sectoral support and regional government support (Rp.106.11 trillion).
Bank Indonesia and Ministry of Finance has agreed that for the expenditure on the public goods category, Government Securities will be issued and will be directly bought by Bank Indonesia with BI Reverse Repo Rate to be borne entirely by Bank Indonesia.
“So that the interest expense for the Government for the special Government Securities is 0 and for Bank Indonesia is the Reverse Repo rate. The Government Securities remains tradable and marketable,” the Minister explained.
For financing the expenditure to support business sector, the Government will issue Government Securities on the market and the Government and BI agree that market interest rates will be divided in half. Bank Indonesia will bear the gap of market interest rate up to 1% below the Repo Rate.
“The Government will bear an interest rate of 1% below the Reverse Repo Rate while Bank Indonesia will bear an interest between 1% below the Reverse Repo rate and the market rate. It will be conducted through a market mechanism,” the Minister explained.
For other expenditures related to business incentives and other commitments of Government amounting to Rp328.87 trillion, the Government will issue Government Securities through market mechanism and all interest rates will be borne by the Government.
She further said that the burden sharing scheme between the Government and Bank Indonesia will be stipulated in a Joint Decree (SKB). (Ministry of Finance/EN)
Translated by: Ridwan Ibadurrohman
Reviewed by: Yuyu Mulyani