Indonesia to double sales of Islamic bonds

The construction of the new MRT line in Jakarta. As commodity prices slump and consumer confidence evaporates, President Joko Widodo is turning to state construction projects to spur a slowing economy. The government has increased its budget for infr
The construction of the new MRT line in Jakarta. As commodity prices slump and consumer confidence evaporates, President Joko Widodo is turning to state construction projects to spur a slowing economy. The government has increased its budget for infrastructure spending next year by 8 per cent.PHOTO: REUTERS

JAKARTA • Indonesia will double sales of project Islamic bonds next year as it seeks to kick-start a slowing economy with spending on roads, ports and power plants.

Some 13.7 trillion rupiah (S$1.4 billion) of syariah-compliant sovereign debt tied to particular ventures will be offered, up from 7.14 trillion rupiah this year, Finance Minister Bambang Brodjonegoro said last month.

Project sukuk fits well with the government's infrastructure focus and the funds will be used to build Islamic universities, Jakarta rail lines and roads and bridges across the archipelago, Mr Suminto, Islamic financing director at the debt management office, said in an interview last Tuesday.

As commodity prices slump and consumer confidence evaporates, President Joko Widodo is turning to state construction projects to spur a slowing economy.

Demand for syariah debt may be stronger than for non-Islamic notes because it usually offers a yield advantage, said Mr Ezra Nazula, who manages more than US$2 billion (S$2.8 billion) as head of fixed income at Manulife Aset Manajemen Indonesia. "Investors in project-based sukuk tend to be local investors seeking more stability than the conventional bonds," he said.

Indonesian sukuk "gives us an attractive spread over conventional bonds with relatively identical risk", said the Jakarta-based Mr Nazula. South-east Asia's biggest economy is feeling the chill as slowing demand from China depresses prices for its coal, palm oil, tin and rubber exports. Indonesian shipments have fallen for 10 straight months through July. There was an "extreme deterioration" in consumer confidence in the first half, according to a survey by MasterCard. Gross domestic product increased 4.67 per cent in the second quarter, the least since 2009.

The government has allocated 313.5 trillion rupiah for infrastructure spending next year, an increase of 8 per cent from this year.

It is struggling to spend this year's allocation, with Trimegah Securities saying the Public Works and Housing Ministry had spent only 24 per cent of funds earmarked for this year in an Aug 20 research note that cited Mr Taufik Widjojono, the ministry's secretary-general.

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A version of this article appeared in the print edition of The Straits Times on September 04, 2015, with the headline 'Indonesia to double sales of Islamic bonds'. Print Edition | Subscribe