Bonds issue delay may stall IMF deal<\/p>\n
JAKARTA (JP): A delay in the government's plans to issue about
\nRp 30 trillion (US$3.19 billion) worth of bonds for its blanket
\nguarantee scheme on banks, may jeopardize the signing of the next
\nletter of intent (LoI) with the International Monetary Fund
\n(IMF).<\/p>\n
Chief of the Ministry of Finance's debt management unit Fuad
\nRahmany said on Wednesday that details of the bond issue had yet
\nto be drawn up despite the approaching deadline for the signing
\nof the LoI.<\/p>\n
"We must be frank with the IMF and explain our situation. It's
\nbad timing," Fuad said at his office.<\/p>\n
He said the bond issue was among the six prerequisites the
\ngovernment must fulfill before the IMF agreed on a new LoI.<\/p>\n
The amount of bonds to be issued and their coupon rates must
\nbe discussed with the House of Representatives (DPR), which is in
\nrecess until Aug. 16, he said.<\/p>\n
As Independence Day is on Aug. 17, followed by the weekend,
\nconsultation with the legislators is unlikely before Aug. 20.<\/p>\n
The IMF expects to sign a new LoI, which basically sets out
\nthe country's economic reform targets, by late August or early
\nSeptember at the latest.<\/p>\n
The newly installed Cabinet will only have about two weeks to
\nprepare before the LoI deadline.<\/p>\n
The economics ministers must address reform targets, which
\nhave been put on halt since the absence of a working Cabinet.<\/p>\n
Missing the deadline puts at risk Indonesia's debt
\nrestructuring talks with sovereign creditors under the Paris
\nClub.<\/p>\n
The IMF wants the government to replenish its funds for its
\nblanket guarantee on banks by issuing new bonds, Fuad added.<\/p>\n
"They (IMF) fear our weak banking sector is still vulnerable
\nto a run, which the government must cover," he said.<\/p>\n
In January 1998, the government set up a blanket guarantee
\nscheme covering banks' third party funds, including interbank
\nclaims.<\/p>\n
The measure was taken to instill public confidence in the
\nbanking sector, after the 1997 closure of 16 private banks led to
\nmassive runs in other banks.<\/p>\n
To this end, the government issued Rp 53.77 trillion in bonds,
\nwhich Bank Indonesia had assumed in exchange for paying out the
\nguarantee funds.<\/p>\n
Fuad said fears that some banks might face closure if they
\nfailed to meet the minimum capital requirements by year end,
\nrequired the issuance of new bonds.<\/p>\n
According to Fuad, earlier estimation puts the shortfall at Rp
\n30 trillion.<\/p>\n
"But we may have to revise that figure as our banking sector
\nis improving. The current amount may even be enough," he said.<\/p>\n
Fuad said chances of bank closures had dimmed since
\nthe IMF made its assessment on the blanket guarantee funds.<\/p>\n
He explained that the bonds were solely for Bank Indonesia and
\nwere thus not tradable.<\/p>\n
Fuad added that the bonds carried coupon rates of only 3
\npercent. But payments of the principles were tied with inflation
\nrates, he added.<\/p>\n
The government has also issued bonds for Bank Indonesia to
\ncover payments of its emergency liquidity funds.<\/p>\n
In total, he said, the central bank received some Rp 218.3
\ntrillion in government bonds. (bkm)<\/p>",
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