Bonds issue delay may stall IMF deal
Bonds issue delay may stall IMF deal
JAKARTA (JP): A delay in the government's plans to issue about
Rp 30 trillion (US$3.19 billion) worth of bonds for its blanket
guarantee scheme on banks, may jeopardize the signing of the next
letter of intent (LoI) with the International Monetary Fund
(IMF).
Chief of the Ministry of Finance's debt management unit Fuad
Rahmany said on Wednesday that details of the bond issue had yet
to be drawn up despite the approaching deadline for the signing
of the LoI.
"We must be frank with the IMF and explain our situation. It's
bad timing," Fuad said at his office.
He said the bond issue was among the six prerequisites the
government must fulfill before the IMF agreed on a new LoI.
The amount of bonds to be issued and their coupon rates must
be discussed with the House of Representatives (DPR), which is in
recess until Aug. 16, he said.
As Independence Day is on Aug. 17, followed by the weekend,
consultation with the legislators is unlikely before Aug. 20.
The IMF expects to sign a new LoI, which basically sets out
the country's economic reform targets, by late August or early
September at the latest.
The newly installed Cabinet will only have about two weeks to
prepare before the LoI deadline.
The economics ministers must address reform targets, which
have been put on halt since the absence of a working Cabinet.
Missing the deadline puts at risk Indonesia's debt
restructuring talks with sovereign creditors under the Paris
Club.
The IMF wants the government to replenish its funds for its
blanket guarantee on banks by issuing new bonds, Fuad added.
"They (IMF) fear our weak banking sector is still vulnerable
to a run, which the government must cover," he said.
In January 1998, the government set up a blanket guarantee
scheme covering banks' third party funds, including interbank
claims.
The measure was taken to instill public confidence in the
banking sector, after the 1997 closure of 16 private banks led to
massive runs in other banks.
To this end, the government issued Rp 53.77 trillion in bonds,
which Bank Indonesia had assumed in exchange for paying out the
guarantee funds.
Fuad said fears that some banks might face closure if they
failed to meet the minimum capital requirements by year end,
required the issuance of new bonds.
According to Fuad, earlier estimation puts the shortfall at Rp
30 trillion.
"But we may have to revise that figure as our banking sector
is improving. The current amount may even be enough," he said.
Fuad said chances of bank closures had dimmed since
the IMF made its assessment on the blanket guarantee funds.
He explained that the bonds were solely for Bank Indonesia and
were thus not tradable.
Fuad added that the bonds carried coupon rates of only 3
percent. But payments of the principles were tied with inflation
rates, he added.
The government has also issued bonds for Bank Indonesia to
cover payments of its emergency liquidity funds.
In total, he said, the central bank received some Rp 218.3
trillion in government bonds. (bkm)