Bank Indonesia (BI) and the Ministry of Finance have agreed to share the burden, or implement a burden-sharing scheme, to finance President Prabowo Subianto’s priority programs. The support is carried out through the purchase of government bonds (SBN) in the secondary market, with a realized amount reaching IDR 200 trillion.

BI Governor Perry Warjiyo explained that part of the funds from the SBN purchases would be used by the government to support housing programs and the Merah Putih Village/Neighborhood Cooperatives (Kopdes/Kel).

“BI’s synergy in Asta Cita is related to burden sharing. We continue to uphold prudent monetary and fiscal policies. As of yesterday, we have purchased SBN worth IDR 200 trillion,” Perry stated during a virtual working meeting with Commission VI of the Regional Representative Council (DPD RI) on Tuesday (September 2, 2025).

What is Burden Sharing?

According to a publication by the Asian Development Bank (ADB) titled Indonesia's Fiscal Capacity and Burden-Sharing Scheme: A New Insight from Handling COVID-19, the government had previously adopted a similar scheme during the pandemic.

The burden-sharing mechanism was implemented to fund economic recovery during COVID-19. Under this scheme, the Ministry of Finance issued government bonds (SBN) to Bank Indonesia, with reference to the reverse repo rate.

“The government paid interest upon maturity, but on the same day BI returned the interest as its contribution under the scheme. Simply put, it was a way of creating new money, which was then transferred to the Ministry of Finance to support fiscal spending,” the report explained, quoted Friday (September 5, 2025).

Three burden-sharing mechanisms were applied at the time:

1. Fully borne by BI through SBN purchases via private placement. Funds were used for public goods such as healthcare, social safety nets, and sectoral spending. Interest was set at BI’s reverse repo rate, but returned entirely to the government.

2. Government sold SBN in the market, with BI acting as standby buyer. In this scheme, BI bore the interest gap equivalent to the difference between BI’s three-month reverse repo rate minus 1%. Funds were allocated to non-public goods financing such as MSMEs and non-MSME cooperatives.

3. Fully borne by the government, where SBN were sold at full market interest rates. Proceeds were used for other non-public goods spending.

Burden Sharing as Debt Monetization

In monetary economics, burden-sharing is considered a simple form of debt monetization or seigniorage. In practice, the central bank directly purchases government bonds, providing fresh funds to the government while expanding its own balance sheet.

This transaction is temporary since the central bank may later write off the debt from its assets. Debt monetization is typically applied by countries facing fiscal deficits when conventional monetary policy is insufficient.

There are three variations of monetization:

1. Direct, where the central bank buys new bonds directly from the government.

2. Indirect, where bonds are purchased in the secondary market through open market operations.

3. Direct with debt cancellation, where the debt is erased from the central bank’s balance sheet.

Technically, debt monetization is similar to quantitative easing (QE). The difference is that QE only allows central banks to buy existing (seasoned) bonds, while monetization permits the purchase of new bonds as direct financing sources.

Central Bank Independence

The use of debt monetization to cover fiscal deficits is often debated and sometimes viewed as taboo, as it may undermine central bank independence.

Critics argue that if the central bank repeatedly finances deficits, monetary policy risks being dominated by fiscal interests, government spending may spiral out of control, and inflation could surge.

On the other hand, fiscal policy has a major impact on the macroeconomic environment in which central banks operate. Therefore, central bank involvement in government bond markets is still considered acceptable, as long as it does not overly strain the balance sheet or compromise independence.

With clear coordination between the government and the central bank, debt monetization is expected not to trigger inflation or create fiscal problems, as long as it is properly managed.