Why Bank Indonesia will fund $40 billion of government’s budget
Published 30 Jun,2020 via Bloomberg Politics - Indonesia’s central bank is close to an agreement to fund $40 billion of the government’s fiscal response to fight the coronavirus pandemic this year, the largest debt monetization program among emerging-market nations.
Bank Indonesia has already been buying bonds directly from the government at auctions to help finance its budget spending. Now it’s preparing to go one step further by purchasing a pre-determined amount of assets at zero interest or below the market rate.
Governments around the world are borrowing record amounts to cope with the pandemic, and many are turning to their central banks to finance the extra debt. Directly monetizing the deficit has long been a taboo though, especially for emerging markets, and raises potential risks around inflation and the central bank’s independence.
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Grace Sihombing and Rieka Rahadiana