Government finalizing steps to launch treasury bonds<\/p>\n
JAKARTA (JP): The government is close to finalizing
\npreparations for the launch of short-term treasury bonds that
\nwill be used to finance future budget deficits and crucial for
\nthe avoidance of a potential fiscal disaster in 2004, when many
\nbonds already issued by the government mature.<\/p>\n
Ministry of Finance Director General for Financial
\nInstitutions Darmin Nasution said that a draft law on bonds would
\nsoon be proposed to the House of Representatives.<\/p>\n
\"It (the bill) is still being checked for the last time by the
\nministry's legal office before being sent to the President,
\nfollowing which it will be proposed to the House,\" Darmin said
\nlast week.<\/p>\n
\"If the bill is approved by the House then we can issue the
\ntreasury bonds,\" he added.<\/p>\n
The government initially planned to start issuing the six-
\nmonth to 12-month bonds in April, but a host of economic and
\npolitical problems confronting the government are believed to
\nhave been responsible for stalling the plan.<\/p>\n
\"It turned out that drafting the law on bonds took longer than
\nwe had expected,\" Darmin said, pointing out that various
\ngovernment-related agencies and Bank Indonesia had been involved
\nin drafting the law.<\/p>\n
Darmin said that the law would provide the legal basis for the
\ngovernment to issue the bonds.<\/p>\n
He added that, according to the draft law, the bond issue was
\naimed at helping to finance future budget deficits and to redeem
\npart of the massive government bank recapitalization bonds
\npreviously issued, to avoid fiscal catastrophe.<\/p>\n
Economists have said that, as a result of the country's severe
\neconomic crisis that started in 1997 and the costly bailout of
\ndomestic banks by the government, the state budget would continue
\nto be haunted by painful deficit problems over the next decade.<\/p>\n
The government has issued bonds worth around Rp 650 trillion,
\nwhich is equal to nearly half the nation's gross domestic product
\n(GDP), to finance the restructuring and recapitalization of
\ndomestic banks. This is the largest amount ever spent by any
\ncountry in the world to bailout its banks.<\/p>\n
A majority of the outstanding bonds will mature in 2004, with
\na total value of Rp 170 trillion. In 2008, bonds worth some Rp
\n150 trillion will also mature, causing an unbearable burden on
\nthe state budget.<\/p>\n
Economists have warned that the government must be able to
\nredeem part of the outstanding bonds within the next two years to
\navoid risking another economic crisis, particularly as
\ninternational donors could no longer be expected for assistance,
\nboth in terms of new loans or debt restructuring facilities, amid
\nthe prospect of an economic slow down in developed countries.<\/p>\n
\"We'll redeem part of the bonds by issuing the treasury
\nnotes,\" Darmin said.<\/p>\n
But Darmin was quick to say that the treasury bonds would not
\nbe used to finance the 2001 budget deficit.<\/p>\n
\"Even if the House approves the draft law soon and we can
\nlaunch the bonds this year, we are not committed to financing the
\ncurrent deficit,\" he said.<\/p>\n
The 2001 budget deficit could widen to the dangerous level of
\n6 percent of GDP, compared to initial projections of 3.7 percent
\nof GDP, mainly due to the continuing exchange rate fall of the
\nrupiah against the U.S. dollar and rising domestic interest
\nrates. The government is planning to propose some measures the
\nHouse this week under a fiscal adjustment package in an attempt
\nto maintain the deficit at the 3.7 percent of GDP.<\/p>\n
Darmin also said that, during the initial discussions, there
\nwere suggestions from Bank Indonesia and the International
\nMonetary Fund (IMF) that the treasury bonds also be used
\nimmediately to replace the central bank's one-month and three-
\nmonth SBI promissory notes as a monetary instrument.<\/p>\n
\"But we told them we can't do that because the cost would be
\nvery huge,\" he said, without elaborating.<\/p>\n
To absorb excess liquidity in the economy and help curb
\ninflationary pressure, Bank Indonesia has been issuing SBI notes.
\nHowever, the central bank has to pay the interest on SBIs, which
\nhas continued to rise because of the weakening rupiah.<\/p>\n
Experts have also said that the treasury bonds would provide a
\nbenchmark for the lifeless domestic bond market.<\/p>\n
\"A risk-free reference is needed to provide bond investors
\nwith a realistic and computable assessment of risk,\" said one
\nfixed-income analyst.<\/p>\n
\"If risk cannot be quantified, investors may avoid the market
\naltogether,\" the analyst added.<\/p>\n
Darmin declined to disclose the structure of the planned bond
\nissue, only explaining that the issue would be managed by the
\nfinance ministry's debt management office.(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/government-finalizing-steps-to-launch-treasury-bonds-1447893297",
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