Bank Indonesia (BI) recently partnered with the national government to enter into a so-called “burden-sharing” agreement with the central bank, which buys bonds on the primary market in order to keep the cost of credit to a minimum. Proceeds from the bond purchase were paid directly with the help of Covid 19, with President Jokowi promising to accelerate spending until 2021. Stimulus efforts by the Indonesian government are underway, but investors intend to worry that Indonesia will return to additional “burden-sharing” cycles. The investor community has allowed Indonesia and the Philippines to obtain passports for the first cycle of debt monetization, but the question now is whether market participants will react negatively to additional burden-sharing cycles in the coming months. “The advance was made on a three-month retirement agreement (renewable at six months) that expires at the end of this month, and with the timely adoption of Bayanihan 2, this opens the door to stronger burden-sharing between tax and monetary authorities,” Mapa said. In the Philippines, where GNP is getting the green light to increase cash advances to the national government, we can expect a possible second cycle of debt monetization of up to PHP 812 billion once the first pension agreement is settled at the end of the month. The short-term impact on inflation and currency may not arise immediately, but repeated cycles of these “burden-sharing arrangements” could begin to undermine the central bank`s credibility, calling into question the independence of GNP, as the boundary between fiscal and monetary authorities begins to blur significantly. This policy, he added, includes the reduction of the central bank`s key interest rate by 175 basis points cumulatively this year. The cut brought the overnight redemption rate down to its lowest level of 2.25%. It has also entered into a retirement agreement with the Treasury Office to lend the national government up to £300 billion at zero interest, with a maximum repayment period of six months. In addition to retirement, GNP bought government bonds on the secondary market.

On October 1, the Monetary Board approved the short-term interim advance of $540..PHP billion to the national government (about $11.1 billion) to strengthen the national government`s finances following the first $300 billion buyback contract. PHP (about $6.2 billion) concluded last September…