Eighth UNCTAD Debt Management Conference
Geneva, 14 - 16 November 2011
Debt Management Offices: New Developments and
Challenges
by
Mr. Widjanarko
Director, Directorate General of Debt Management
Ministry of Finance of the Republic of Indonesia
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Ministry of Finance
Directorate General of Debt Management
Debt Management Offices:
New Developments and Challenges
8th Debt Management Conference
Geneva, Switzerland
November 14 -16, 2011
Indonesia Debt Management
Vision & Missions
Vision and Missions
Vision
To be a professional institution delivering efficient budget financing, prudent
risk management and fiscal sustainability
Missions
1. To establish government debt portfolio management in an effective,
transparent and accountable manner
2. To control debt issuance and procurement by maintain a borrowing
capacity that supports fiscal sustainability
3. To establish development financing independence by prioritizing domestic
financing sources and developing an efficient and stable domestic market
4. To establish international cooperation in obtaining alternative financing
sources as well as supporting regional financial market stability
Ministry of Finance
Republic of Indonesia
4
Indonesia Debt Management
Evolution and Organization
Debt Management Unit Evolution
Directorate of
External
Funds
Directorate
of Ext. Funds
Directorate
of Ext. Funds
DMU
1999
2006
Center of
Gov’t Sec.
Mgmt
2001
2004
DGDM
Gov’t Sec.
Mangmt Treasury
Loan & Grant
Mgmt Treasury
Ministry of Finance
Republic of Indonesia
Before 2000:
Borrowing was mainly from multilateral/ bilateral institutions
Lack of clarity and responsibility among the institutions
Front office also acted as back office, while no clear middle office
function existed
2001
Center of Government Securities Management was established under
Secretariat General MoF to manage the issuance of government
securities
The establishment of this unit followed the international best practice
and consisted of front, middle and back office functions.
Loan management continued to operate under the Directorate General
of Budget.
2004 - 2006
Unification of the two separate units dealing with debt -the Directorate
of External Funds and Center of Government Securities Management under Directorate General of Treasury
First global securities issuance
2006 – present
The establishment of debt management office that in line with
international best practice.
Consists of front, middle, back office and a supporting unit.
2007: establishment of primary dealer system
2008 : Diversification of instruments including sharia compliant
securities and domestic loans
2010 : improvement of external loan management through the
enactment of Government regulations concerning external loan
procurement
6
Organizational Structure of
Debt Management Office
Front Office
• Development of calendar of issuance,
related to securities issuances in the
domestic and external markets.
• Domestic market auctions and external
issuance.
• Investor and creditor relations
• Loan procurement and negotiation
• Coordination with line ministries to
expedite loan disbursement
• Instruments development
Ministry of Finance
Republic of Indonesia
Middle Office
• Development of medium
and annual strategy.
• Portfolio risk management.
• Domestic and external
Gov’t debt budget
• Contingent liabilities
management.
• Debt management analysis
Back Office
• Loan and grants
registering, and
controlling,
• Debt services
settlement
• Loan monitoring
• Debt database
development and
management
• Debt accounting
7
Staff Composition
Presently, DMO has 329
76
65
42
63
41
42
Secretariat Directorate General
Dir. of Loan and Grant
Dir. of Government Debt Securities
Dir. of Shariah Financing
Dir. of Debt Strategy and Portfolio
Dir. of Evaluation, Accounting, and Settlement
Ministry of Finance
Republic of Indonesia
staff,
By the end of 2014 the
number of staff should
increase to 359.
The skills required for
each position are
diverse, for example:
Administrative/ clerical
Financial management
Accounting and treasury
Mathematic and statistic
Legal
International cooperation
Communication, etc
8
Staffing Structure
Job Level/ Position
Director
General; 1
Director; 5
Deputy
Director;
23
Manager;
81
Staff; 218
Age Composition
40-50
20%
50-60
6%
30-40
30%
Ministry of Finance
Republic of Indonesia
20-30
44%
Educational Background
Non-University
Degree
4%
Diploma
Degree
25%
Master Degree
18%
Doctorate
Degree
1%
Undergradua
te Degree
52%
Most of the staff hold undergraduate degrees
Each staff member is encouraged to pursue higher
education that fits the organization’s requirement.
Capacity building is conducted through in-house
training, internships, workshops/ seminars, etc.
Most of the staff are still below 40, this provides
opportunities for further human capital
development
9
Indonesia Debt Profiles
Debt Profiles
Maturity Profiles (billion USD)
By Instruments
16
Gov't Sec
Loan
Loan;
USD 69.1 bn
12
Gov't
Securities;
8
USD 130.0 bn
4
-
By Currencies (billion USD)
200
33.0
150
100
50
29.4
25.9
31.2
28.4
32.8
78.3
71.6
2007
2008
37.1
39.6
89.0
100.4
2009
2010
34.4
42.2
109.2
0
IDR
USD
Ministry of Finance
Republic of Indonesia
JPY
EUR
2011
Others
Indonesia relies on two main sources of
financing:
Loans
Government Securities
There is substantial paperwork related to
loan and grants management (approx.
1,700 documents of active loan
agreements).
11
Risk Profile
Refinancing Risk
Refinancing Risk (ATM in year)
9.95
34.47
33.17
31.73
9.65
9.54
20.29
19.44
21.03
34.22
21.70
9.38
7.57
7.22
2008
2009
Maturity debt portion < 1 year (%)
2008
2009
2010
2011
7.65
7.13
2010
2011
Maturity debt portion < 3 year (%)
Maturity debt portion < 5 year (%)
Interest Rate Risk
Currency Risk
51.71
28.74
47.39
28.16
25.48
23.39
44.33
24.34
22.12
19.59
45.78
17.50
17.08
13.42
2008
2009
Variable rate ratio [%]
Ministry of Finance
Republic of Indonesia
2010
2011
Refixing rate [%]
2008
2009
10.86
2010
11.23
2011
FX Debt to GDP ratio (%)*
FX Debt to total debt ratio (%)
*) risk profile as of End of August
2011
12
Indonesia Debt Management
Challenges
Unified Public Debt Management Office
Benefits
Improvement
in the debt profile
Better portfolio and risk management
Improvement in debt data consolidation
Supporting Government debt management objective of lowering down Debt/GDP ratio
Generating synergy in managing debt financing to cope with market dynamics
Promoting efficiency in debt management
Reducing bureaucratic process in terms of financing the budget
Achievements
Established risk committee to supervise market volatility and its impact on the Government
Debt market and to supervise daily operational risks of the DMO
Established integrated debt service settlement for loans and Government securities
Established integrated portfolio and risk management
Developed effective communication with lenders, investors and credit rating assessors which
led an upgrade in sovereign rating to investment grade and an improvement in Country Risk
Classification
Established monitoring systems and legal framework for contingent liabilities management
Improvement in human capital development
Ministry of Finance
Republic of Indonesia
14
Issues
Purposes
Remarks
Developing a reliable debt
database (mainly Loans)
• Supporting the formulation of
annual and medium term debt
management strategy
• Supporting policy of budget
financing
Establishing the primary dealer
system
• Managing Gov’t securities liquidity
in secondary market
Lack of incentives for primary dealers, for
example prioritizing PDs members for
global bonds JLM selection
Conducting direct transactions
through DMO dealing room
• Improving liquidity in secondary
market during market turbulence
Limited availability of funds for direct
transactions and long & bureaucratic
process to approve the transactions
Diversifying Gov’t securities
instruments adding retail bonds and
shariah compliance Gov’t securities
• Matching investors preference
• Managing portfolio
• Widening investor base
• Regulations for new
instruments need to be
strengthened
Improving business process and SOP
for loan procurement (emphasizing
on loan negotiation)
• Maintaining good governance on
loan management
• There are some SOP for front
office that overlapped with
middle office
Developing benchmark rate
• Providing comparison for loan
effective rate
• There is a wide gap between
loan effective rate and
benchmark rate
Ministry of Finance
Republic of Indonesia
• An accurate and comprehensive
loan database is still in the
development process
15
Challenges and Future Developments
Challenges
Moving towards IT based debt management
Institutional Development
Development of IT systems
Integrated database to support effective and
reliable database
Establish consolidated ALM System
Improving effective and efficient risk
Development of hedging mechanism
management
Reducing impact of rising cost of debt
Formulating derivative instruments infrastructures
Continuous improvement on debt issuance and
procurement mechanisms
Developing Government securities market
Increasing resiliency of Government securities
management
Business process leads to inefficiencies in
loan execution
Instruments diversification to match financing needs
and investors preference
Development of organization capacity to support
project-based Government shariah securities
Developing crisis management protocol
Matching calendar of issuance and cash projections
to reduce idle cash
Development of instruments to match financing
needs and investors preference
Close coordination with related parties to improve
loan management efficiency
Ministry of Finance
Republic of Indonesia
Continuous staff capacity building
16
End of Presentation
November 2011
Directorate General of Debt Management
Ministry of Finance Republic of Indonesia