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Government Securities Prospects in 2013

This article discusses the management and financing strategy for government securities in 2013 in Indonesia. It covers the performance of government securities, market prospects, financing trends, issuance plans, and the role of primary dealers. It also provides insights into the secondary market performance and foreign investor activity.

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Government Securities Prospects in 2013

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  1. Government Securities Prospects in 2013 Ministry of Finance of the Republic of Indonesia Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia

  2. Outline Government Securities Management and Financing Strategy Government Securities Performance Government Securities Market Prospects in 2013 2

  3. Government Securities Management and Financing Strategy 3

  4. Strategi Umum Pengelolaan SUN 2013 Strategic Management of Government Securities 2013 4

  5. Government Securities Market Development Framework Deep & Liquid Market Sufficient Market Absorption & Efficient Price/Yield MARKET INFRASTRUCTURE • Demand • Banks • Foreigners • Insurance Company • Mutual Fund • Central Bank • Pension Funds • Securities Company • Retail Investor • Supply • Government Debt Securities • SUKUK • Primary Market • Activities: • Regular Issuance (Book building, Issuance, Private Placement) • Infrastructure: • a. Auction System (in development process with IDX): • Electronic Trading Platform (ETP) for Retail Govt. securities • - Hittable of PDs quotation • Debt Switch Program (Many to Many) • b. Institutional infrastructure • Secondary Market • Activities: • Buyback, Debt switch, Securities Lending • Infrastructure: • Buyback System, Primary Dealers, Selling Agent, Repo, Benchmark Yield Curve, Brokers/Dealers, Price Discovery Mechanism 5

  6. Financing Trend, 2004 – 2013 (trillion IDR) Notes: * LKPP Unaudited 2012 ** Revised Budget 2013 6

  7. Gov’t Securities Issuance Plan 2013 Gov’t Securities Operation – Policy Combination • Domestic market issuance will be prioritized • Issuance in benchmark tenor, Benchmark Series for 2013: • Issuance in global market • Maximum non-IDR govt securities issuance approximately 18%-20% from total gov’t debt securities issuance • Buyback, debt switching, direct transaction • Initiatives strategic :USD securities issuance in domestic market & sukuk project financing • FR 66 – 5 Y • FR 63 – 10 Y • FR 64 – 15 Y • FR 65 – 20 Y Primary Dealers Citibank N.A Deutsche Bank AG HSBC PT. Bank Central Asia, Tbk PT. Bank Danamon Indonesia, Tbk. PT. Bank Internasional Indonesia, Tbk PT. Bank Mandiri (Persero), Tbk PT. Bank Negara Indonesia (Persero), Tbk PT. Bank OCBC NISP, Tbk PT. Bank Panin, Tbk PT. Bank Rakyat Indonesia, Tbk PT. Bank Permata, Tbk PT. Bank CIMB Niaga, Tbk Standard Chartered Bank JPMorgan Chase Bank NA. PT. Bahana Securities PT. Danareksa Sekuritas PT. Mandiri Sekuritas PT. Trimegah Securities, Tbk 7

  8. Financing Progress 2013 *Adjusted by changes in Cash Management & Debt Switch 8

  9. Government Securities Performance

  10. Primary Market Performance In the last auction, foreign participation reached the highest level of success rate (34%), meanwhile the average foreign participation in Government Debt Sec Auction is 56%. Increasing volatility in second quarter 2013 influenced demand in domestic market 10

  11. Secondary Market Performance Yield of Benchmark Series trend to pick up Activity in the domestic bond market increasing [In Percentage] Average daily trading (IDR Trilion) As of Sept 10, 2013 Global Financial Crisis Eurozone sovereign debt crisis Turn Over 10 Y Govt Bond Bid Ask Spread 10 Y Govt Bond Up to Sept 4, 2013 11

  12. Yield SBN pada peer’s market • Indonesia Gov’t bond yield post take highest increase among others in Asia region. • As of September 11, 2013 • Source Asian Bonds Online 

  13. Ownership of Tradable Domestic Government Securities In IDR Trillion During 2009 – 2013, domestic financial institutions are picking up in size, however growth of ownership from this institution still lower than foreign investors.

  14. Foreign Investor Activity Foreign Ownership - Proportion by Tenor Net Buyer (Seller) - Non Resident [In IDR Trillion] Foreign investors mostly dominated by real money long term investors Capital outflow month to date is amountedIDR 18.59 Trillion lower than capital outflow in Sept 2011 (European Crisis) amountedIDR29.29 Trillion

  15. 10 Y Gov Bonds Yield and Foreign Ownership Movement During Crisis As of Sept 10, 2013 13 Sept 2011: Foreign Ownership IDR249.2trn (35.9%) 13 Feb 2012: ForeignOwnership IDR236.4 trn (31.80%) Subprime Mortgage Crisis 29 Sept 2011: Foreign Ownership IDR229.1trn (32.9%) 10 Maret 2009: Foreign Ownership IDR78.7trn (14.5%) 5 Sept 2008: Foreign Ownership IDR108.4trn (20.0%) European sovereign debt concerns Catatan : * During September to December 2008 ** During August to September 2011 *** During 1 February s.d. 1 June 2012 In September 2011, foreign investors pulled out from domestic government bond market in bigger volume than in September 2008. However, the impact on the benchmark domestic government yield was much less pronounced. 15

  16. The Government Proactive Effort MoF & Central Banks is coordinating on market stabilization As of Sept 10, 2013 Government Debt Purchase by Central Banks on June 12th 2013 IDR 1.2 Tr Government Debt Buy Back on June 20th IDR 0,5Tr Government Debt Buy Back on June 10th IDR 0,496 Tr Government Debt Buy Back on June 13th IDR 0,499 Tr

  17. The Government Proactive Effort Ministry of Finance (Mof) Central Banks (BI) Increase deposit facility interest rate for 25 bps to be 4,25% start from June 12th, 2013. Increase BI Rate for 25 bps to be 6,00% on June, 13th,2013. Purchasing on secondary market through auction in June 12th, 2013 in the amount of IDR 1,2 trillion. • Improve the communication between the market player and stake holders of Government Debt Market by doing investor conference call on Thursday, June 13th 2013 • Government Debt Buy Back on: • June 10th, 2013 - IDR496,9 bio • June 13th 2013 - IDR499,5 bio • June 20th 2013 - IDR500 bio • Activate Government Debt Securities mitigation crisis through Bond Stabilization Framework (BSF), by hold a meeting within stakeholders, vice ministry of finance II, and secretariate ministry of state enterprises on Thursday, June 13th 2013. • Daily monitor on Government Debt Market and yield movement. • Coordination on financial stability system. Deposit Insurance Company (LPS) Increase guaranteed deposit interest rate to be 5,75% for Rupiah and 1,25% for foreign exchange on commercial banks Increase the deposit interest rate for rural banks to be 8,25%.

  18. Government Securities Market Prospects in 2013

  19. Government Debt Securities Prospect on 2013 • With the additional target of issuance on Revised Budget 2013, there is an opportunity for the market player to allocate their portfolio on Government Debt on a relative high return comparing to the first semester 2013. Although there’ some risk triggered by external factor such as the QE ending facility that brings the raise on UST, inflation expectation as an impact of the subsidied fuel hike and the exchange rate weakness. • The correction yield is deep and estimated had reach the bottom. It is a good opportunity for local and foreign investor to invest on Govenrment Securities. • The insurance and pension fund investible asset allocate for Government Debt Securities is relatively low there still more room for investing on Government Debt Securrities. • The Government is pro active on developing and maintaining the market stability together with the regulator (BI, OJK dan LPS). • Building an intensive communication with the market player in order to deliver the policy responsively. • Central Bank (BI) is using Government Securities as monetary tools and will gradually building stock on the government debt and reduce the SBI ownership as mandated on the State Treasury Law. • There are policy and initiatives regarding obligation to invest on Government Debt , among others: • Basel III application • Capital Equivalency Maintained Assets (CEMA) Application Central Banks on Foreign Banks • The Establishment of BadanPenyelenggaraJaminanSosial (BPJS) yang terdiridari BPJS Kesehatan (instrumen SBN jangkapendek) danKetenagakerjaan (instrumen SBN jangkapanjang).

  20. END OF PRESENTATION Directorate General of Debt Management Ministry of Finance of Republic of Indonesia Directorate of Government Securities Frans Seda building, 4th floor, Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710 Phone: +6221 3810175 Fax. : +6221 3846516 Site: www.djpu.depkeu.go.id

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