New Indonesian Law Permits Sharia-Compliant Government Bonds

An article by two Indonesian lawyers published in the August BNA World Securities Law Report [subscription required] discusses Indonesia's new Sovereign Syariah Commercial Paper law enacted in April of this year. The new law permits the Indonesian government to issue Sharia-compliant bonds to raise capital. The law provides for the bonds to be issued by the Ministry of Finance's newly created Sovereign Sukuk Issuance Co., and for the use of government assets as the underlying assets for the issuance of the sovereign sukuk (capital bonds). Authors Hanim Hamzah and Harly Siregar say that the new bonds that comply with Islamic law will give the government a better chance at raising funds in the Persian Gulf area, as well as from the Indonesia state pension fund. Corporations in Indonesia are already issuing this type of debt instruments, but this law will now allow the government to raise an expected $2 billion (US) in this form. There still remain, however a number of legal and tax uncertainties surrounding these financial instruments.