Next year wrong time to issue sovereign bonds: Economists<\/p>\n
Fitri Wulandari, The Jakarta Post, Jakarta<\/p>\n
Contrary to what some foreign investment bankers have suggested,
\nlocal economists say that early next year would not be the right
\ntime to issue sovereign bonds given the country's low
\ninternational rating.<\/p>\n
Economists Sri Mulyani Indrawati and Anton Gunawan both said
\nthat issuing bonds in a low rating environment would be costly
\nfor the government as investors would demand a huge discount to
\ncover the risk.<\/p>\n
The country's current international rating is triple C, which
\nis below investment grade.<\/p>\n
\"Investors might be interested, but they would ask for a
\ndiscount because the low rating creates higher risk,\" said Anton,
\nan economist at Citibank office in Jakarta, over the weekend.<\/p>\n
The government is considering issuing sovereign bonds as part
\nof a financing strategy for the 2004 state budget, amid the
\nprospect of shrinking financial assistance from foreign lenders
\nas the country's current International Monetary Fund (IMF)
\nprogram will end later this year. The government is facing
\nrising political pressure not to extend the IMF program, which
\nwill cost the country around US$3 billion in debt rescheduling
\nfacilities from the Paris Club of creditor nations and the London
\nClub of private lenders.<\/p>\n
Some foreign investment bankers have reportedly told both the
\ngovernment and central bank officials that the sovereign bond
\nissue could be launched as early as next year on the back of
\nstrong interest from investors amid limited supply in the
\ninternational market, and positive data in the area of
\nmacroeconomics.<\/p>\n
But Sri said that issuing sovereign bonds was like selling an
\nimage of a country, and if the rating was low, the proceeds from
\nthe bond issue would not be optimal.<\/p>\n
\"If we (Indonesia) have a poor rating, investors can argue
\nthat the bonds should be discounted because they will take into
\naccount our export performance, stability, state budget deficit
\nand balance of payments,\" said Sri, who is also the IMF executive
\ndirector for the Southeast Asia region.<\/p>\n
But proponents of the sovereign bond issue argue that the
\ncountry's rating would be raised once it stops seeking debt
\nrescheduling for its sovereign debts, a likely scenario under the
\nplan to terminate the IMF program.<\/p>\n
Minister of Finance Boediono said the government had not yet
\ndecided whether it would issue sovereign bonds next year, saying
\nit had yet to consider various options, including the impact of
\nthe 2004 general election and the possible military strike in
\nAceh on investor sentiment and the overall economy.<\/p>\n
Anton said that in addition to pushing through privatization
\nand the asset sale program, and boosting tax revenue, the
\ngovernment should intensify bilateral talks with main creditor
\nnations like Japan, and also through the Consultative Group on
\nIndonesia (CGI) to secure fresh loans and other kinds of support.<\/p>\n
CGI is the country's traditional international donors
\ngrouping.<\/p>\n
If the planned bond issue is realized, it would be the
\ncountry's first sovereign offering since the 1997 economic
\ncrisis.<\/p>\n
In July 1996, the country issued Yankee bonds worth $400
\nmillion that mature in 2006.<\/p>",
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