Repatriation Fund Flood to Boost Bond Market in 2017

The repatriation of approximately Rp 141 trillion in funds from the tax amnesty program will likely fuel a boom in the domestic bond market in 2017. Such a large sum requires an investment vehicle, one of which is debt securities. Corporate funding demand is expected to increase for expansion in 2017, and financing the state budget deficit (APBN) will flood the domestic financial market with debt securities.

Indonesia's rating agency predicts corporate bond issuance will reach Rp 119.6 trillion, as reported by Kontan Harian (December 21st). Meanwhile, the government needs Rp 385 trillion to cover the 2017 APBN deficit.

Indonesia's macroeconomic fundamentals, which are expected to improve with economic growth above 5 percent, controlled inflation, low interest rates, and a stable Rupiah exchange rate, could invigorate the bond market in the Year of the Rooster. However, planned electricity tariff increases that could trigger inflation, interest rate hikes by the US Federal Reserve, and US President Donald Trump's protectionist policies could act as catalysts in the domestic bond market.