Overcoming Obstacles to Building Public Debt Management Capacity - PowerPoint PPT Presentation

Overcoming Obstacles to Building Public Debt Management Capacity World Bank Debt Management Forum, Washington, October 29, 2012 Ministry of Finance of the Republic of Indonesia Direcrorate General of Debt Management

Topic of Discussion 2

Debt Management Reform in Indonesia Asian Financial Crisis Implied a Sudden and Substantial Increase in Debt Levels 100% 88,4% 1998 - 2012 Debt to GDP ratio yr 2010-2012 1990 - 1997 80% lower than average ratio before economic crisis in 1997 60% 38,8% 40% 24,6% 23,2% 20% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Krisis Ekonomi thn. 1997 Debt Profile (trilliun Rupiah) 2,000 13000 11000 1,600 9000 1,200 7000 800 5000 400 3000 - 1000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 PDN SBN DN SBN LN PLN Kurs USD-IDR [RHS]

Reasons for the DMO Establishment in MoF  Governance and Strategy ( DMU) , External 1970- 1999-2004 Loan CMGB, Development ; 2004 Division GBD  Legal Framework (primary Relatively Weak legislation ) : Law 17/2003 on Capacity State Financial; Law 1/2004 staff DMO on Treasury. Special Law 2006 on ward 24/2003 on Government Securities;  Managerial Structure. Central  Debt Management Strategy government debt is managed (2005-2009) was enacted in by to division that is 2005 and need to be executed separated and worked without fully by two divisions; standard guideline;  Need for evaluation the debt management operations. 4 4

Reasons for the DMO Establishment in MoF  Audit. Lack of capacity in external (DMU) , External 1970- loan division in term of data base Loan CMGB, 1999- 2004 Division GBD 2004 recording ( integrity and reliability) Relatively and loan storage need to be Weak enhanced for audit purpose; Capacity  DMO is needed to intensify close staff DMO coordination with : 2006 on ward • Fiscal policy in providing accurate debt service forecast and its scenario; • Monetary policy in keeping the central Bank with the information of future debt transaction and government cash flow; 5 5

Reasons for the DMO Establishment in MoF  Borrowing and Related Financing (DMU) , External 1970- Loan CMGB, 1999- Activities. 2004 Division GBD 2004  Domestic Market Borrowing. Relatively Weak DMO is needed to develop Capacity domestic bond market and staff broadening bond instrument DMO 2006 on ward in order achieve the goal of debt management strategy  Support is needed for external loan (2005-2009) that consists of optimum portfolio management division that have to resolve the and market development; classical issue of low disbursement among other creating Internal procedure document, and professional legal adviser. 6 6

Reason for the DMO Establishment in MoF External (DMU) ,  Borrowing and Related Financing 1970- CMGB, Loan 1999- Activities. 2004 GBD Division 2004  Need to include Loan Guarantees on Relatively Weak debt management strategy, clarity for Capacity on lending policy; and execution of staff DMO the derivatives operations. 2006 on ward  Operational Risk Management;  Cash flow Forecasting and Cash  Debt Administration and Data Balance Management;  Need to have a reliability of cash Securities. Need to strengthen a readily accessible procedure manual forecasting, and the procedure to for external loan concessional invest the idle cash in the recording, debt service payment, and market. storage agreement. 7 7

Reasons for the DMO Establishment in MoF  Operational Risk Management; External (DMU) , 1970- CMGB, Loan 1999-  Segregation of Duties, Staff 2004 GBD Division 2004 Capacities; and Business Continuity. Relatively  Need to have clarity in the Weak Capacity functionalities of the debt manager staff of the External Loan Division - act DMO 2006 on ward to negotiate loan and should not  Operational Risk Management; service the debt;  Need to enhance the single data  Need to have a monitoring for risk base of the government debt of external loan; through conversion of two data  Clarity for those who record and recording in the similar systems make payment of debt service, (DMFAS); and accounting system.  Need to enhance the Bulletin of central government debt. 8 8

Milestone of Government Securities Management First Bond Issuance Budget Financing , First Global Bond Bond Bond Recapitulation (INDO-14) Recapitulation Reprofiling 1 st Calendar of issuance Law 24/2002 Monthly regular issuance 1999 2004 2002 2003 2005 2010 2009 2008 2007 2006 First Global Bond with First T Bill Law Syariah Bond tenor 30 years First Syariah First Syariah Bond Retail Bond DMO Establishment First Zero Coupon Bond First Retail Bond Crisis Management Protocol 9

Milestone of Indonesia Debt Management Office Bond 1970-2004 Debt External Loan Recapitulation Management 1999 Division Unit (DMU) , Central Government 2001 Management Bond for Government Budget Bond Financing Government 2004 Bond Division 2006 Debt Management Office Government Government Middle Office External Loan Back Office Bond (Syariah) Bond Division Division Division 10 10

The Role of External Support Debt 1970- 1999 AusAid AusAid Management 2004 Unit (DMU) ,  Concept on Foreign Aid  Capacity Building on : External Law Central Cost and Risk Analysis Loan  IT gap; 2001 Management Concept; Division  Data Library Concept.  Debt Management Office Government Bond (DMO) Concept; UNCTAD 2004 Government  Debt manegement World Bank Bond Division Conference  Ehancement of DMFAS.  Diagnostic Report and Implementation 2006 on SECO Switzerland World Bank DMO ward  DMFAS Ehancement  ALM Version 6.0;  Contingent Liability Concept;  Risk Cost Analysis 11 11

The Impact of Reform  Better Governance and (DMU) , External 1970- Loan CMGB, 1999- Strategy Development ; 2004 Division GBD 2004  Enhancement of Debt Relatively Management Strategy Weak Capacity formulation (2010-2014); staff  Easier coordination among DMO 2006 on ward FO, MO and BO to execute Debt Management Strategy goal and target;  More efficient and effective debt management operation and evaluation. 12

The Impact of Reform  Better Operational External (DMU) , 1970- CMGB, Loan 1999- 2004 Risk Management; GBD Division 2004  Clear segregation of Relatively Weak duties, among FO, MO Capacity and BO; staff DMO  check and balance 2006 on ward mechanism for those  Better recording in the External Loan who verify and arrange Division; payment of debt  More data reporting on cenrtal service; government debt, public sector debt,  Enhancement of risk produced to several stake holder monitoring and including the rating agencies. complaince; 13

Lesson Learned from the Establishment of DMO Benefits  Improvement in the debt profile  Better portfolio and risk management  Improvement in debt data consolidation  Supporting Government debt management objective of lowering down Debt/GDP ratio  Generating synergy in managing debt financing to cope with market dynamics  Promoting efficiency in debt management  Reducing bureaucratic process in terms of financing the budget Achievements • Established risk committee to supervise market volatility and its impact on the Government Debt market and to supervise daily operational risks of the DMO • Established integrated debt service settlement for loans and Government securities • Established integrated portfolio and risk management • Developed effective communication with lenders, investors and credit rating assessors which led an upgrade in sovereign rating to investment grade and an improvement in Country Risk Classification • Established monitoring systems and legal framework for contingent liabilities management • Improvement in human capital development 14

Attachment 15

Government Bonds Market Development Strategy DEEP, ACTIVE, AND LIQUID BOND MARKET EFFICIENT PRICE / YIELD ABSORPTION CAPACITY Widening Market Facilitating Efficient Price Market Investor Base Deepening Discovery Mechanism Making Demand & Supply Market Infrastructure • Bond reopening • Regular calendar of issuance • Primary dealership • Tax incentive • Transparency system • Product • OMO instruments • Trading platform diversification • Clearing & Settlement • Secondary • Borrowing & • Methods of sale of • Market surveillance reserve lending facilities, bonds (private placement, • New market, e.g, • Repo window bookbuilding, retails auction) 16