Floating bonds overseas<\/p>\n
Buoyed by stronger macroeconomic stability, a steadily
\ndeclining debt ratio to gross domestic product and the positive
\nresponse from domestic and foreign investors to its rupiah bonds,
\nthe Indonesian government plans to reenter the international
\nfinancial market next year.<\/p>\n
The 2004 state budget proposal includes a plan to raise Rp
\n3.48 trillion (US$400 million) from floating international bonds.
\nFor a government bond issue, that amount is quite small. But for
\nan initial debut, after being absent for so many years from the
\ninternational market, such a small bond issuance could well
\nfulfill the government objective. After all, the deal would be
\ndesigned more as a means of testing the water, rather then
\nraising funds for the budget.<\/p>\n
For sure, the credibility of the government in the market has
\nbeen strengthening, especially over the past two years, due to
\nsteady, significant progress in its reform measures. Moreover,
\nthe government has steadily cut down its debts from more than 100
\npercent of GDP in 2000 to as low as 67 percent this year. It is
\nprojected to further decline to a much more sustainable level of
\n61 percent in 2004 and 52 percent in 2005.<\/p>\n
All these achievements have increased market confidence in
\nboth the government's ability to manage the economy and in the
\noutlook of the economy itself. They also have strengthened the
\nsense of confidence on the part of the government.<\/p>\n
This market confidence can be seen from the inflow of foreign
\nportfolio investment, the strengthening rupiah, lower inflation
\nand interest rates. All these positive indicators have in turn
\ncontributed to macroeconomic stability.<\/p>\n
True, as critics have claimed and the government itself has
\nacknowledged, macroeconomic stability would be less meaningful
\nwithout high economic growth to absorb the huge amount of
\nunemployment. The economy will remain fragile if growth remains
\nbelow 4 percent, as it has been over the past two years.<\/p>\n
Nevertheless, given that Indonesia had virtually been a basket
\ncase among the emerging market countries until as recently as
\nmid-2001, such progress is indeed impressive, a hard-gained
\nmomentum that should be maintained in order to sustain the
\nvirtuous cycle within the economy.<\/p>\n
The government's decision not to renew the International
\nMonetary Fund (IMF) program and consequently stop new borrowing
\nfrom this multilateral agency, at the risk of suffering a net
\nresource outflow in its official capital account, also reflects
\nin part its self-confidence.<\/p>\n
All this air of optimism and heightened self-confidence does
\nnot, however, mean that the economic road map ahead will all be
\nas smooth as a freeway. Despite all the progress, selling long-
\nterm debt instruments as bonds in the international financial
\nmarket, especially next year when the nation and government will
\nbe preoccupied with three rounds of elections involving no less
\nthan 130 million eligible voters, will not be an easy exercise.<\/p>\n
Bank Indonesia Governor Burhanuddin Abdullah said on Tuesday
\nthe government would stage a road show in international financial
\ncenters such as New York and London in September to charm
\ninvestors and creditors regarding the market acceptability of
\ngovernment bonds.<\/p>\n
Burhanuddin said the government needed to fully brief the
\ninternational market on what the government had thus far achieved
\nsince its disappearance from the market about six years ago.<\/p>\n
That is a wise move. But instead of placing too much emphasis
\non past achievements, the government team should focus on the
\npresentation of a credible blueprint of Indonesia's economic
\nreform agenda for the next three years at least.<\/p>\n
Since buying Indonesia's bonds means investing in the future
\nprospects of its economy, investors or creditors need to be well
\ninformed of how the economy would be managed, not only next year
\nbut also under a new government to be elected next year.<\/p>\n
The market also needs to know how the remaining structural
\nreforms would be implemented in order to remove the barriers that
\nhave so far stood in the way of robust economic growth.<\/p>\n
Hopefully, the blueprint of economic reform measures that is
\nbeing finalized will meet market expectations. This means that
\nthe new reform mechanism, which will replace the IMF program,
\nshould serve as a reliable anchor on which the market can
\nreasonably calculate the risks of investing in the Indonesian
\ngovernment's debt instruments.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/floating-bonds-overseas-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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