Central Bank has 'no plan' to issue Islamic bonds

Central Bank has 'no plan' to issue Islamic bonds

Bloomberg, Jakarta

Indonesia's central bank said it has no plans to sell bonds
that comply with Islamic law in the next few months, a central
bank official said.

Arab News earlier reported on its Web site that Bank Indonesia
plans to sell Islamic bonds for the first time in a US$500
million issue in the next few months.

"This is not true," Harisman, a director at the central bank's
Islamic banking department in Jakarta said in a telephone
interview. Any such bond sale would be made by the finance
ministry, he said.

Indonesia, Southeast Asia's biggest economy, has previously
said it is considering selling Islamic bonds overseas next year,
betting the nation's fastest economic growth in a decade will
help lure investors. The government is studying the legal
framework needed for it to sell bonds to overseas investors that
comply with the Koran's ban on interest payments, Finance
Minister Jusuf Anwar said June 26.

The proposed Sukuk bonds will be sold by Bank Indonesia, the
central bank, the Arab News report said, citing a source from the
Islamic Development Bank it didn't identify. Sukuk is a document
or a certificate that represents the value of an Islamic asset.
Islamic bonds are often backed by assets sold to a company
created by the borrower.

"Our international department has made suggestions to the
government to consider issuing not only conventional but also a
global Sukuk bond," Harisman said. "If anything is done, it will
by the Finance Ministry."

In October 2002, parliament approved the Government Debt
Securities Law, providing a legal basis for the sale of domestic
and overseas debt and the development of a government bond
market. The law doesn't include provisions for the government to
sell Islamic debt, according to the Finance Ministry's Web site.

"There is no plan in the short-term to sell the bonds," Rahmat
Waluyanto, a director at the Finance Ministry's debt management
unit said in a telephone interview. "If the parliament changes
the law that will pave the way for the government to sell the
Sukuk. The government is still seeking some options, including
amending the law."

The possibility of an Islamic debt sale comes after Indonesia
sold $1 billion of 10-year bonds in April. Malaysia, Dubai, the
German state of Saxony-Anhalt and other governments have sold
Islamic bonds.

Indonesia's debt is rated B2, five levels below investment
grade, by Moody's Investors Service, and B+, four levels below
investment grade by Standard & Poor's. Both are junk, or high-
yielding debt.