Economist: Debt Switching Remains Credible if Fiscal-Monetary Boundaries Are Maintained

Jakarta (ANTARA) - Economist from the Center of Reform on Economics (CORE), Yusuf Rendy Manilet, believes that debt switching can serve as a credible stabilisation instrument as long as the boundaries between fiscal and monetary policy are maintained.

For Indonesia, the credibility of policy is considered highly dependent on the perception that the boundaries between fiscal and monetary policy are clearly maintained.

“As long as these boundaries are upheld, debt switching can function as a credible stabilisation instrument. However, if these boundaries begin to blur, its effectiveness could be reversed and increase risk premiums,” said Yusuf when contacted by ANTARA in Jakarta on Tuesday.

Recently, Bank Indonesia (BI) and the Ministry of Finance (Kemenkeu) agreed to continue debt switching this year. Yusuf believes that the market’s response to this policy tends to be pragmatic and neutral-positive, rather than euphoric.

“Investors see debt switching as part of a normal debt management toolkit, especially since Indonesia has done it in 2021, 2022, and 2025. This consistency actually strengthens the perception that fiscal authorities have a structured strategy for managing maturity risks,” he explained.

However, Yusuf also cautioned that the frequency of its use could raise questions about the government’s dependence on central bank support, especially if done on a large scale.

“Therefore, market perception depends heavily on the context. If done in a limited, transparent, and market-based manner, it will be seen as a signal of stability. But if the scale increases structurally, the market may begin to question the boundaries between coordination and potential fiscal dominance,” said Yusuf.

In this regard, he added, parameters and guidelines are very important to maintain the independence of the central bank.

Operationally, according to Yusuf, there are three key factors that determine the extent to which interventions such as debt switching remain within healthy limits.

The first is the government’s initial fiscal position. The stronger the fiscal position, the less the need for intervention, thus preserving the independence of the central bank.

The second is the level of policy interest rates. When interest rates are high, bond interventions have a greater monetary impact and should be approached with more caution.

The third is the level of interconnectedness between the bond market and the overall financial system. The higher the correlation, the greater the risk that disruptions in the government bond market will spread to the financial system.

In addition, Yusuf reminded of the institutional principles that must be maintained, namely that interventions must be market-based, limited in scale, transparent, and not used for direct deficit financing.

“Debt switching conducted through the secondary market mechanism and at market prices can still be categorised as part of legitimate monetary operations, not fiscal financing,” said Yusuf.

Previously, BI agreed on a plan to implement debt switching transactions for government bonds with the Government in 2026, in accordance with the amount of government bonds maturing in that year, amounting to Rp173.4 trillion.

The implementation will be carried out gradually on government bonds held by BI with settlement before maturity in accordance with applicable provisions.

This is the result of the 2026 Fiscal and Monetary Policy Coordination Meeting on Friday (20/2).

The authorities stated that the purchase of government bonds by BI from the secondary market will be carried out from market participants and through a bilateral debt switching mechanism with the Government, which can be traded in the market with the use of prevailing market prices in accordance with market mechanisms.

This bilateral government bond exchange mechanism between Kemenkeu and BI has been carried out previously, including in 2021, 2022, and 2025.

As of 16 December 2025, BI has purchased government bonds worth Rp327.45 trillion, including purchases in the secondary market and debt switching programs with the Government amounting to Rp241.99 trillion.