'Deficit' bonds may carry fixed rate of 10-15 percent

JAKARTA (JP): The government's "deficit" bonds may carry a fixed interest rate of 10 percent to 15 percent or a variable rate linked to either the interest rate of Bank Indonesia three- month promissory notes (SBIs) or Singapore interbank offered rate (Sibor), according to a senior government official.

Director General of Fiscal Decentralization Machfud Sidik said on Tuesday that the maturity of the bonds would be set at between five years and 10 years.

"The bonds will be tradable," Machfud told reporters on the sidelines of a meeting between the finance ministry and the House of Representatives' state budget task force.

"If it's a fixed rate, it will be set at 10 to 15 percent ... The maturity can be either 5 or 10 years," he said.

He said, however, that the structure of the bonds had yet to be discussed with the House budget task force.

"But we'll try to make the bonds very attractive," he said.

The government has proposed to issue around Rp 2.9 trillion (US$254 million) worth of bonds to help limit the 2001 state budget deficit to a safer level of around 3.8 percent of gross domestic product (GDP).

The bond issue is part of the various measures proposed by the government to resolve the budget deficit problem which some say could widen to a disastrous level of 6 percent of GDP due to the sharp plunge in the value of the rupiah and rising domestic interest rates.

Wealthier provinces and districts are expected to purchase the bonds.

The central government was meant to provide a general grant (DAU funds) to help provincial and district administrations finance their new autonomy. But due to the state budget crisis, Jakarta later asked the wealthy regions with strong revenue from natural resources including oil, gas, mining and timber to exchange part of their DAU funds with government bonds.

Machfud said that the wealthier regions were estimated to enjoy a surplus of about Rp 28 trillion in the current budget year.

"So the Rp 2.9 trillion bonds issue is relatively small compared to the total surplus funds," he said, trying to dismiss speculation that the regions might reject the government bonds.

He said the central government would not force the regions to purchase the bonds.

Some regions earlier said that they would reject the offer.

"Amid the current political condition, I don't think it would be an attractive investment," said one official of a district administration in East Java.

Some analysts have also said that the government would face difficulties in persuading wealthier provinces and districts to purchase the bonds.

They said that the political process involved seem tedious as the regions had obtained autonomy in managing their economic affairs.

Under the government's new fiscal plan, the wealthier regions will also be asked to purchase government shares in state-owned enterprises as well as assets held by the Indonesian Bank Restructuring Agency.

The bonds issue and asset sales are expected to provide some Rp 5.2 trillion in revenue. (rei)