BI to use treasury bills for management<\/p>\n
JAKARTA (JP): Bank Indonesia (BI) will switch to treasury
\nbills as its main tool for monetary management starting this
\nApril or May, the central bank deputy governor Miranda Goeltom
\nsaid on Tuesday.<\/p>\n
Miranda said that using treasury bills would be more effective
\nwhen operating in an open market because it wouldn't affect the
\ncentral bank's balance sheet.<\/p>\n
"Bank Indonesia will gradually replace the SBIs debt
\ninstrument with treasury bills starting in April or May," she
\nsaid in reference to Bank Indonesia's short-term promissory
\nnotes.<\/p>\n
At present, Bank Indonesia relies on SBIs to control money in
\ncirculation and interest rates.<\/p>\n
The change in Bank Indonesia's strategy is in line with
\ngovernment plans to issue six to 12-month treasury bonds in April
\nthis year.<\/p>\n
The government has said that the issuance of short-term bonds
\nwas meant to replace part of the outstanding long-term government
\nbank recapitalization bonds.<\/p>\n
The measure is expected to ease pressure on the state budget
\nwhen the majority of outstanding bank recapitalization bonds
\nmature in 2004.<\/p>\n
The government has issued some Rp 430 trillion (US$46 billion)
\nworth of bonds to help finance the country's bank
\nrecapitalization program.<\/p>\n
Economists have warned that the government must be able to
\nretire or to redeem part of its outstanding bonds within the next
\ntwo years to avoid risking another economic crisis.<\/p>\n
They pointed out that in 2004, more than Rp 70 trillion of
\nbonds would mature and become unbearable for the state budget.
\nThe burden will be even heavier as some of the loans owed to the
\nInternational Monetary Fund (IMF) will also mature at the same
\ntime.<\/p>\n
The government has also said that plans to issue treasury
\nbonds would help develop a domestic secondary bond market.<\/p>\n
Miranda said that developing the bond market was crucial in
\nhelping to ensure the country's economic recovery process.<\/p>\n
She pointed out that treasury bonds would become a benchmark
\nfor the private sector in issuing rupiah bonds, rather than
\noverseas, which could experience some currency risk.<\/p>\n
The domestic bond market is still not liquid due to a lack of
\nappetite from investors.<\/p>\n
Meanwhile, Citibank economist Anton Gunawan said that
\ninvestors' appetite for planned treasury bonds would depend on
\nthe interest rate offered.<\/p>\n
He said that in terms of risk, both SBIs or government
\ntreasury notes were relatively risk free.<\/p>\n
"Perhaps the interest rate should be more or less the same as
\nthe SBI rate," said Anton on the sidelines of the same seminar.<\/p>\n
Elsewhere, Miranda agreed with the IMF that Bank Indonesia
\nshould not be allowed to purchase government bonds in the primary
\nmarket.<\/p>\n
"If Bank Indonesia is allowed to purchase (government debt) in
\nthe primary market, while its independence remains unclear, it
\ncould be dangerous," she said.<\/p>\n
She explained that purchasing government debt in the primary
\nmarket would in effect make Bank Indonesia cover the state budget
\ndeficit, which was against the central bank's primary mission of
\ncontrolling inflation.<\/p>\n
Coordinating Minister for the Economy Rizal Ramli said on
\nMonday that the IMF had expressed concern over the proposal to
\nallow Bank Indonesia to purchase government debt in the primary
\nmarket.<\/p>\n
The proposal is included in the government-proposed amendment
\nof the central bank law. The House of Representatives is
\ncurrently debating the bill, and is expected to complete the
\nprocess by the middle of this month.<\/p>\n
Critics have said that the proposed amendment of the central
\nbank law would undermine Bank Indonesia's independent status.
\n(rei\/bkm)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-to-use-treasury-bills-for-management-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}