Debate on new bond bill kicks off

The Jakarta Post, Jakarta

The government and the House of Representatives started discussions on Monday on the new draft law on bonds that is intended to provide a strong legal basis for the government to issue new bonds to help out the country's banking sector.

The discussions, which will involve the Ministry of Finance and the House's Commission IX for financial affairs and the state budget, are expected to be completed during the current House session which ends on March 28, Minister of Finance Boediono said.

The passage of the law on time would give the government the legal basis for refinancing Rp 3.9 trillion (some US$380 million) worth of bonds set to mature in July, he said.

Refinancing old bonds means issuing new bonds to cover the redemption of the maturing ones.

At the meeting, it was revealed that all the factions on the commission had expressed concerns over the huge pressures that the state budget had to bear each year just to repay the interest on government bonds.

This year, the state budget has had to allocate Rp 59.2 trillion for interest payments alone, with most of the money going to the local banks the government bailed out at the height of the financial crisis in 1998.

More than Rp 600 trillion worth of bonds were issued by the government at that time to avoid the total collapse of the country's banking sector.

To date, however, the banks have not managed to fully recover and are still heavily reliant on revenue from government bonds.

With the slow recovery in the banking sector, the government's ability to manage its domestic debts is essential so as not to put more strain on the budget.

The debate is expected to continue today with the House scheduled to listen to the opinion of the central bank.