Fiddling With Debt Financing Ahead Of The Fed Fund Rate Increase, What Is Sri Mulyani's Strategy?

Minister of Finance Sri Mulyani (Photo: Doc. Antara)

JAKARTA - Minister of Finance (Menkeu) Sri Mulyani said that the government continues to monitor and pay attention to global conditions regarding the plan to release state debt securities (SUN), especially those denominated in foreign currencies.

“The Ministry of Finance continues to adopt a debt financing strategy that is opportunistic and flexible but still focuses on the principle of prudence. So these two factors are very much needed when considering the very dynamic market conditions,” he said through an online channel on Wednesday, February 2.

According to the Minister of Finance, one of the main concerns is the normalization of monetary policy of the United States central bank, namely The Federal Reserve. He revealed that the Fed's signal to raise interest rates (Fed Funds Rate/FFR) is very clear this year. Moreover, the FFR level has been in a sloping position for a long time which is then driven by high inflation factors.

“All countries, especially developed countries with the level and speed of their economic recovery plus inflation, will normalize their strategy more quickly. Therefore, it can have a spillover impact," he said.

The Minister of Finance added that the government continues to design so that the realization of this year's financing can be executed carefully, in balance with other debt instruments, and in accordance with the mandate of the State Budget Act.

“For an exit strategy, including the Fed's plan to increase the fed funds rate, it certainly has an impact. So we have to look at the timing and also how we have the opportunity to issue SUN at the global level, including considering domestic factors as well," he continued.

The Minister of Finance ensures that debt issuance does not only refer to one particular foreign currency, but also includes the euro and the Japanese yen.

“We are calibrating the optimization of the composition of debt in foreign currencies versus domestic issues. Here, the development of market conditions will determine the timing and the right size,” he said.

For information, the share of foreign ownership of debt securities continues to decline. This is good enough for the stability of the national economy because it can reduce negative effects when capital outflows occur.

In the January 2022 edition of our APBN report, it is known that the total government debt debt until the end of December 2021 was recorded at Rp. 6,908.87 trillion or 41 percent of GDP. Of this amount, Rp. 6,090.31 trillion of which was in the form of SUN. Meanwhile, the portion of foreign currency SUN was IDR 1,267.44 trillion, or much less than domestic SUN which was IDR 4,822.87 trillion.

"The issuance of foreign currency (SUN) is by looking at the most appropriate window of opportunity, and is expected to have an impact on our stability with costs and risks that can be managed properly," concluded Minister of Finance Sri Mulyani.