Bank Indonesia Distributes IDR40.7 Trillion APBN Through Purchasing Government Securities

Illustration of rupiah currency. (Photo: Doc. Antara)

JAKARTA - Bank Indonesia (BI) is said to have purchased Government Securities (SBN) worth IDR 40.77 trillion until February 16, 2021 to support the government's fiscal policy.

BI Governor Perry Warjiyo said the purchase of SBN was carried out under two schemes, namely through the main auction mechanism of Rp. 18.16 trillion and through the Greenshoe Option (GSO) mechanism of Rp. 22.61.

"Bank Indonesia continues to implement an accommodative monetary policy to align with the government's fiscal policy in order to promote national economic recovery, and maintain good liquidity conditions in the banking and financial markets," he said in a virtual press conference in Jakarta, Thursday, February 19.

Perry added that the loose liquidity condition in January 2021 has driven the high ratio of liquid assets to third party funds (LA / DPK), namely 31.64 percent and the growth of third party funds (DPK) which is high by 10.57 percent annually.

For information, in 2020 the central bank has purchased SBN from the primary market amounting to IDR473.42 trillion which is intended to help fund the 2020 State Budget (APBN). This year, the monetary authority agreed to continue similar policies to support state finances.

Meanwhile, this step was stipulated in the Joint Decree of the Minister of Finance and the Governor of Bank Indonesia on April 16, 2020, as extended to December 11, 2020 with a period of time until December 31, 2021.

For your information, Bank Indonesia's way of participating in supporting the government's fiscal operations is known as burden sharing. In this way, the state can get instant alternative financing with manageable risks.

However, burden sharing has a weakness, which can lead to hyperinflation, aka very high inflation if the central bank buys too many government bonds. This is because buying up debt securities means flooding the market with a large amount of money in circulation (liquidity flood).

As a result, inflation soars and currency prices will fall compared to before. Indonesia had experienced hyperinflation in 1965. At that time, it was stated that inflation had skyrocketed to 600 percent. The government and BI have agreed to keep inflation in the range of 3 percent plus minus 1 percent.