18 November 2009

New Funding for Indonesia's Defense Procurement

18 November 2009
The loan will go toward covering this year's defense budget. (photo : Commando)

Indonesia Borrows $285m in First Direct Commercial Loan

PT Bank Negara Indonesia announced on Wednesday that it and other domestic and foreign lenders had agreed to loan the government $285 million to cover the defense budget for the remainder of the year.

The funding marks the first time the government has secured direct loans from commercial banks. Analysts said the precedent may spur similar lending by the state in the future.

“The deal will be signed this evening [Wednesday] in Singapore,” Bien Subiantoro, BNI’s director of international banking, said in a text message.

According to BNI, French commercial bank Natixis will provide $157.25 million, PT Bank Negara Indonesia $68.85 million and Credit Suisse $53.65 million, with PT Bank Rakyat Indonesia loaning the remainder. The loans are due to mature in September 2013.

Bien said BNI was pleased with the loan since the interest rate would be based on the commercial London Interbank Offer Rate plus 4 percent. He added that provisions for the loan would not be needed since the government was extremely unlikely to default. LIBOR currently stands at 1.05 percent. Purbaya Yudhi Sadewa, an economist at state-run Danareksa Research Institute, gave the loan a positive review.

“If the rate is LIBOR plus 4 percent, which means around 5 to 6 percent, then it is quite cheap compared to global bonds issued by the government this year,” he said. “It will be good for diversification of the government’s debt.”

The government issued $3 billion of global bonds in February with interest rates of 10.5 percent to 11.75 percent.

“If [the government] goes to the market again [to issue debt] the interest rate on the loan can be used as a benchmark, so if investors ask for a higher rate the government can always go to the banks for the funds,” Purbaya said.

Rahmat Waluyanto, director general of debt management at the Finance Ministry, did not respond to requests for comment by the Jakarta Globe.

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