Indonesia is set to launch a large-scale bond issuance aimed at funding President Prabowo Subianto’s ambitious public housing program. This initiative is part of a broader effort to address the country’s housing shortage, with the government planning to expand its home ownership loan facility.
The bond issuance will help provide the necessary financial backing to accelerate housing development, which is a key pillar of President Subianto’s economic agenda. Finance Minister Sri Mulyani Indrawati confirmed the move on Thursday, though specifics regarding the size of the bond sale were not provided. Housing Minister Maruarar Sirait indicated that the issuance would be significant, but the final numbers are still under discussion.
It remains unclear whether this bond issuance is part of the government’s broader $40 billion borrowing plan for 2024, with the Ministry of Finance not providing immediate clarification. The bond issuance will be supported by Bank Indonesia, the country’s central bank, which has committed to purchasing the bonds in the secondary market. Bank Indonesia Governor Perry Warjiyo earlier indicated that the bond purchases would align with the central bank’s monetary operations goals.
This plan highlights the increasingly close coordination between fiscal and monetary policymakers to support President Subianto’s housing agenda. While the government’s intervention to bolster the housing sector is seen as necessary, it has raised concerns among some investors about the potential risks of monetizing debt.
According to Rajeev De Mello, portfolio manager at Gama Asset Management, there is no immediate macroeconomic stress or liquidity issue that justifies a pre-commitment by the central bank to buy specific debt linked to the housing market. He expressed concerns that such moves could weaken long-standing financial stability in Indonesia and put pressure on the rupiah.
In addition to the bond issuance, Bank Indonesia has also pledged to lower reserve requirements for banks extending mortgage loans, providing liquidity incentives for the housing sector amounting to up to 80 trillion rupiah. To support the housing program, the finance ministry is reallocating funds, including $19 billion in spending cuts across other government sectors.
The Indonesian government had initially allocated $1.7 billion in the budget for subsidized mortgages, covering only 220,000 houses, well short of President Subianto’s target of building 3 million homes annually. To address this, the government offers low-interest mortgage options with 5% interest rates for low-income earners, aiming to make home ownership more accessible.
As the government moves forward with its plans, the bond issuance and central bank support are crucial steps in addressing the country’s housing challenges. However, the ongoing concerns from investors underscore the need for a careful balance between funding ambitious projects and maintaining economic stability.
