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
Indonesias 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
250

18,5
200

150

100 198,8
44,1
37,8 15,7
75,2
50 33,6
11,7 5,1
66,9 62,2
53
33,7 37,6 29,4 32,9 1,2
2,1 14,7
10,9
0
China Hong Indonesia Korea Malaysia Phillipines Singapore Thailand Vietnam Japan
Kong
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.
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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

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

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 Operational Debt Strategy

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.

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 Debt Financing Instruments

T-Bills
Government Debt
Securities Government Bond
Government
Securities
Islamic Fixed Rate (IFR)
State Owned Retail Sukuk (SR)
Asset Based Global Sukuk (SNI)
Islamic T-Bills (SPN-S)
Sovereign Sukuk/
Financing Sukuk Negara
Instrument Services
Based Hajj Fund Sukuk (SDHI)

Foreign Loan Project Project Financing (PFS)

Loan Based Project Underlying (PBS)
Domestic Loan

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Policies to Address and Mitigate Sudden Reversal

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X. Debt Performance

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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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