Indonesian parliament approves Islamic bond issuance-MP

Reuters -- An Indonesian parliamentary working committee approved the government's plan to issue Islamic bonds, also known as sukuk, late on Thursday, clearing the way for issuance in the domestic and global market this year.

The approval means that the government can proceed with the sale of Islamic bonds abroad, tapping a wider range of investors to fund a widening state budget deficit. Soaring oil prices have pushed up the cost of fuel and electricity subsidies.

The parliament approved the issuance of Islamic bonds, with the sale of domestic bonds due in August and of international bonds in October.

It also approved the use the finance ministry's property valued at 18.371 trillion rupiah, or about $2 billion, as the underlying assets for the Islamic bonds, which sets the maximum amount of Sukuk the government can issue.

"This is the final process they had to follow in the parliament," said Drajad Wibowo, a member of the parliamentary working commission which handles finance and banking, adding that certain technical issues would still be settled by the government.

Sukuk comply with sharia, or Islamic, law which bans payment of interest and allows money to be earned only from physical assets. It also bars investment in alcohol, tobacco or gambling.

The government had said it expected to raise the equivalent of about $1 billion from the sale of rupiah-denominated Islamic bonds in August, and to sell a dollar sukuk in October, raising as much as $1 billion.

Southeast Asia's largest economy has been slow to tap the fast-growing Islamic finance market, for example to fund its huge infrastructure needs, and has lagged Malaysia and Singapore in developing sharia-compliant products.