Fri, 03 Mar 2000

BI to name bond market makers next month

JAKARTA (JP): Over five foreign and local financial entities have expressed interest in becoming market makers of the government's bonds, according to Bank Indonesia's senior official.

Bank Indonesia deputy governor Miranda S. Goeltom said on Thursday the central bank expected to appoint several of the short-listed candidates in April.

"We should have picked them last month but we decided to give the selection more consideration," Miranda told reporters on the sidelines of a seminar on Bank Indonesia's position in the economic and political discourse, organized by the Institute for the Study of Business Etiquette in Indonesia (Lspeu).

Miranda declined to mention the candidates' names, but said the interested financial entities included foreign and local banks as well as securities firms.

The government has so far issued bonds worth Rp 282 trillion to finance the recapitalization of the country's ailing banks.

The tradable bonds currently total Rp 255 trillion. In the first stage, the central bank only allowed 10 percent of the tradable treasury bonds, or Rp 25.5 trillion, to enter the secondary market. But the response from the market was disappointing.

Miranda said she hoped the appointment of market makers would be able to incite bond trading activities.

Bank Indonesia was looking for market makers who were financially strong, had sound management teams and owned good net workings.

She said it was preferable to have a mix of local and foreign market makers consisting of banks and non-bank entities alike.

"The appointment of market makers should create a competitive market environment that would benefit bond prices on the market," she said.

Miranda said market makers needed privileges to make active bids and offers, capable of short-selling, meaning to place a bid although lacking in funds.

"This is common practice in other countries, but our law here forbids the central bank from channeling credits onto the secondary market," she said.

Miranda said the central bank was still looking at ways of how to create active market makers without breaking the law.

Furthermore, the Indonesian market was not fully prepared for treasury bonds trading, she said.

"In markets such as the United States, the infrastructure and market environment are already developed; players know how to calculate yields and risks," she said.

She estimated it would take about a year to have a liquid Indonesian market for treasury bond trading.

Commenting on the recent hike in the salaries of civil servants, Miranda said it would not affect Bank Indonesia's money policy as yet.

Inflation would certainly rise, Miranda said, but added she saw no reason to tighten the money flow unless inflation rose due to underlying monetary factors.(bkm)