Rp 40t planned in new bonds to secure IMF deal<\/p>\n
JAKARTA (JP): The government announced on Tuesday that it
\nplanned to issue bonds worth Rp 40 trillion (about US$4.67
\nbillion) in the near future, as part of a set of preconditions
\ndesigned to secure an International Monetary Fund (IMF) lending
\nagreement.<\/p>\n
Minister of Finance Boediono said the government is seeking
\nlegislators' approval before issuing more bonds.<\/p>\n
\"The Rp 40 trillion equals roughly 5 percent of our banks'
\ntotal liabilities, amounting to some Rp 800 trillion,\" he told
\nreporters after a meeting with House Commission IX, which
\noversees financial affairs.<\/p>\n
Boediono, however, did not explain why the size of the bond
\nissue was larger than the Rp 30 trillion originally proposed.<\/p>\n
The bond issue is one of six \"prior actions\" the government
\nmust undertake before the IMF will agree to signing a new lending
\nagreement, called a Letter of Intent (LoI), with the government.<\/p>\n
The government expects to be able to sign a new LoI on
\nThursday to restart a $5 billion IMF loan program suspended late
\nlast year.<\/p>\n
Proceeds from the bonds will be used to cover the government
\nsponsored blanket guarantee scheme for the banking sector.<\/p>\n
The scheme was established to instill public confidence in a
\nbanking sector crippled by the 1997 economic crisis.<\/p>\n
Under the scheme, the government will guarantee bank customers
\nthe safety of their deposits in the event of a bank's closure.<\/p>\n
This safety net has become more important with Bank
\nIndonesia's requirement that banks have a minimum capital
\nadequacy ratio (CAR) of 8 percent by the end of this year.<\/p>\n
The CAR measures the ratio between a banks capital and risk-
\nweighted assets.<\/p>\n
Those unable to meet this criteria face either closure or the
\npossibility of a merger with a stronger bank.<\/p>\n
As several banks may not be able to meet the CAR target, the
\nIMF demanded that the government replenish its guarantee funds.<\/p>\n
When the government initiated the blanket guarantee scheme in
\nJanuary 1998, it raised Rp 53.77 trillion in bonds.<\/p>\n
Boediono did not say how much of that amount remains.<\/p>\n
He said the government will issue the bonds to Bank Indonesia,
\nwhich is responsible for the blanket guarantee scheme, meaning
\nthey will not be traded in the secondary market unless the
\ncentral bank is required to replenish the guarantee scheme fund.<\/p>\n
Details over the structure of the bond issue remain sketchy,
\nbut government officials said they would most likely carry a
\nfixed interest rate.<\/p>\n
Boediono assured that the bonds would have little impact on
\nthe state budget, as interest payments would only begin if the
\nproceeds were used for the blanket guarantee scheme.<\/p>\n
Asked when the government planned to issue the bonds, he said
\nit must discuss the schedule with the IMF first.<\/p>\n
Economists have warned the government against issuing more
\nbonds because such a measure would add to Indonesia's debt
\nburden.<\/p>\n
Previously, the government has issued bonds worth around Rp
\n430 trillion to recapitalize the banking sector.<\/p>\n
It raised another Rp 144.5 trillion in bonds to provide
\nemergency liquidity for banks hit by massive runs in 1998.<\/p>\n
The government has said it would reduce the blanket guarantee
\nscheme funds starting next year, in line with growing confidence
\nin the banking sector.<\/p>\n
Commission IX chairman Benny Pasaribu was unable to say when
\nlegislators could approve the bond issue plan.<\/p>\n
\"But, from our colleagues present at the meeting, there
\ndoesn't seem to be any objection,\" he said.<\/p>\n
Boediono said that, except for the bond issue plan, the
\ngovernment had met almost all of the six prior actions stipulated
\nby the IMF.<\/p>\n
Others include the announcement of an independent review of
\nseveral major debt restructuring deals and the reduction of the
\ncountry's primary money supply to Rp 108 trillion.<\/p>\n
An IMF high-level mission has been in Jakarta since Sunday to
\nreview Indonesia's progress in meeting reform targets.<\/p>\n
Led by the Fund's Asia Pacific deputy director Anoop Singh,
\nthe team is expected to finalize the eagerly awaited LoI.<\/p>\n
A new LoI would pave the way for the resumption of the IMF's
\n$5 billion aid package to Indonesia and facilitate disbursement
\nof a $400 million loan tranche suspended late last year due to
\nconcern over the previous administration's commitment to meeting
\neconomic reform targets.(bkm)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/rp-40t-planned-in-new-bonds-to-secure-imf-deal-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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