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.