Government committed to redeem maturing bonds<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
The government has set aside around Rp 3.9 trillion (US$410
\nmillion) to cover the redemption of bonds of equal value maturing
\nin July, state budget director general Anshari Ritonga said on
\nWednesday.<\/p>\n
\"No, there won't be a rollover, the government will fulfill
\nall its obligations,\" he told reporters on the sidelines of a
\nseminar on the economy.<\/p>\n
He said that the money would come from excess funds from the
\nprevious state budget.<\/p>\n
The government issued more than Rp 430 trillion worth of bonds
\nin the late 1990s to recapitalize ailing banks. The first tranche
\nof the bonds to mature is worth Rp 3.9 trillion, which reports
\nsaid are partly held by Bank Central Asia (BCA).<\/p>\n
Anshari's statement should ease concern that the government
\nmight fail to redeem the bonds.<\/p>\n
The cash-strapped government initially planned to issue short-
\nterm bonds with maturity periods of between 6 months and 12
\nmonths called treasury bills, or T-bills, to replace the maturing
\nbonds. But before issuing the T-bills, the House of
\nRepresentatives must first approve the proposed sovereign debt
\nsecurities law, which will serve as the legal basis for the
\nissuance of the bonds.<\/p>\n
The House, however, is in recess until May 12. Legislators
\nhave indicated that the drafting of the proposed law will not be
\ncompleted before July.<\/p>\n
Issuing the T-bills is crucial to avoiding a fiscal disaster
\nespecially when a large chunk of the bonds mature in 2004 and
\n2009.<\/p>\n
This year, a total Rp 18 trillion worth of bonds will mature.
\nThe amount maturing this year will increase to Rp 25 trillion.
\nThe figure will get bigger and bigger in years to come, reaching
\nits peak in 2009 when the government will have to cover the
\nredemption of around Rp 100 trillion in maturing bonds.<\/p>\n
Managing and restructuring this huge public debt has been one
\nof the most difficult problems faced by the government.<\/p>\n
A large chunk of the state budget has to be allocated to
\nservicing these debts, thus cutting down on the funds available
\nfor development. This year alone, some Rp 59 trillion has been
\nallocated to cover the interest on bonds.<\/p>\n
The Indonesian Bank Restructuring Agency (IBRA) is under
\npressure to help the government redeem part of the bonds to ease
\npressure on the state budget.<\/p>\n
The agency initially plans to swap some of the bonds with
\nrestructured bank loans under its management. IBRA has targeted
\nthe exchanging of around Rp 7.5 trillion worth of bonds with the
\nrestructured loans.<\/p>\n
However, the results so far have been zero. Banks have been
\nreluctant to exchange the bonds, which have been the largest
\ncontributor to the profits of most recapitalized banks, mainly
\nbecause of the high risk associated with the loans and the
\nrequirement to set aside large provisions which in turn could
\nthreaten the banks' capital adequacy ratios (CAR).<\/p>\n
The central bank, which still oversees the banking sector,
\nalso insists that IBRA guarantee the loans to be transferred to
\nthe banking sector in case they turn sour.<\/p>",
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