UPDATE 2-Indonesia raises more than forecast in retail sukuk

(Recasts, adds details)

JAKARTA, Feb 23 (Reuters) - Indonesia said it raised more than expected in its first retail sharia-compliant bond and will go ahead with plans to tap a wider range of investors to finance a ballooning budget deficit as it tries to shield the economy from the global crisis.

The government has announced a 71.3 trillion rupiah ($5.97 billion) fiscal stimulus plan, including infrastructure spending, which is intended to boost slowing growth and create jobs as the country heads for elections.

The bond sales are a critical part of the government’s funding for a budget deficit that is now forecast to reach 2.6 percent of gross domestic product in 2009 and as the global economic slowdown is taking its toll on Indonesia’s commodity and other exports.

Finance Minister Sri Mulyani Indrawati said the three-year retail sharia-compliant bond, or sukuk, raised 5.556 trillion rupiah, well above the target of 1.7 trillion rupiah announced by the selling agents.

She also said the government was keeping to its plans to sell global bonds, global sukuk and yen-denominated Samurai bonds.

The difficult global financial market conditions had prompted talk that Indonesia might postpone its global bond issue, which is part of a $4 billion global note programme.

The finance ministry is tapping a wide range of debt instruments to fund its budget deficit and help restore confidence in its battered rupiah currency IDR=.

The planned sales of dollar bonds and sukuk “are still in the pipeline”, but the timing and size of both of the global issues will depend on market conditions, Indrawati told a news conference.

On Saturday, Japan agreed to help Indonesia raise up to $1.5 billion of Samurai bonds, for which the state-backed Japan Bank for International Cooperation (JBIC) [JBIC.UL] will provide a guarantee of up to $1.5 billion, while the two countries will double their bilateral currency swap arrangement to $12 billion.

The stronger-than-expected demand for the retail sukuk -- which is issued as ijarah sale-and-leaseback, where the sukuk is backed by the purchase, sale or lease of physical properties -- reflects investor expectations of further interest rate cuts.

The government is turning to Islamic financing in order to take advantage of demand for Islamic-compliant products in the world’s most populous Muslim nation.

The central bank, Bank Indonesia, cut its key interest rate by 50 basis points to 8.25 percent in February, the third cut in three months, and indicated it may cut rates again to support economic growth which is forecast to slow to 4-5 percent from 6.1 percent in 2008. ($1=11950 Rupiah) (Writing by Sonya Angraini and Tyagita Silka; Editing by Sara Webb & Kazunori Takada)