BI to use treasury bills for management
BI to use treasury bills for management
JAKARTA (JP): Bank Indonesia (BI) will switch to treasury
bills as its main tool for monetary management starting this
April or May, the central bank deputy governor Miranda Goeltom
said on Tuesday.
Miranda said that using treasury bills would be more effective
when operating in an open market because it wouldn't affect the
central bank's balance sheet.
"Bank Indonesia will gradually replace the SBIs debt
instrument with treasury bills starting in April or May," she
said in reference to Bank Indonesia's short-term promissory
notes.
At present, Bank Indonesia relies on SBIs to control money in
circulation and interest rates.
The change in Bank Indonesia's strategy is in line with
government plans to issue six to 12-month treasury bonds in April
this year.
The government has said that the issuance of short-term bonds
was meant to replace part of the outstanding long-term government
bank recapitalization bonds.
The measure is expected to ease pressure on the state budget
when the majority of outstanding bank recapitalization bonds
mature in 2004.
The government has issued some Rp 430 trillion (US$46 billion)
worth of bonds to help finance the country's bank
recapitalization program.
Economists have warned that the government must be able to
retire or to redeem part of its outstanding bonds within the next
two years to avoid risking another economic crisis.
They pointed out that in 2004, more than Rp 70 trillion of
bonds would mature and become unbearable for the state budget.
The burden will be even heavier as some of the loans owed to the
International Monetary Fund (IMF) will also mature at the same
time.
The government has also said that plans to issue treasury
bonds would help develop a domestic secondary bond market.
Miranda said that developing the bond market was crucial in
helping to ensure the country's economic recovery process.
She pointed out that treasury bonds would become a benchmark
for the private sector in issuing rupiah bonds, rather than
overseas, which could experience some currency risk.
The domestic bond market is still not liquid due to a lack of
appetite from investors.
Meanwhile, Citibank economist Anton Gunawan said that
investors' appetite for planned treasury bonds would depend on
the interest rate offered.
He said that in terms of risk, both SBIs or government
treasury notes were relatively risk free.
"Perhaps the interest rate should be more or less the same as
the SBI rate," said Anton on the sidelines of the same seminar.
Elsewhere, Miranda agreed with the IMF that Bank Indonesia
should not be allowed to purchase government bonds in the primary
market.
"If Bank Indonesia is allowed to purchase (government debt) in
the primary market, while its independence remains unclear, it
could be dangerous," she said.
She explained that purchasing government debt in the primary
market would in effect make Bank Indonesia cover the state budget
deficit, which was against the central bank's primary mission of
controlling inflation.
Coordinating Minister for the Economy Rizal Ramli said on
Monday that the IMF had expressed concern over the proposal to
allow Bank Indonesia to purchase government debt in the primary
market.
The proposal is included in the government-proposed amendment
of the central bank law. The House of Representatives is
currently debating the bill, and is expected to complete the
process by the middle of this month.
Critics have said that the proposed amendment of the central
bank law would undermine Bank Indonesia's independent status.
(rei/bkm)