DPR agrees on bond reprofiling plan
The Jakarta Post, Jakarta
The House of Representatives agreed on Monday to allow the government to replace recap bonds, held by four state-owned banks and due to mature between 2004-2009, with ones with longer maturity periods.
Under the scheme, called reprofiling, around Rp 175 trillion (about US$18.2 billion) of the total bonds will have their maturity profile shifted to between 2010 and 2020.
The four banks, namely Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Tabungan Negara (BTN) and Bank Negara Indonesia (BNI), currently hold a total of Rp 231.62 trillion worth of bonds, the majority of which are due to mature between 2004 and 2009.
The House's Commission IX on financial affairs, who endorsed the plan, acknowledged the move was unavoidable in order to help ease the burden on the state budget.
"The commission approved the reprofiling program, as a way to manage the government's public debts," commission chairman Max Moein said Monday.
He was quick to add however, that the banks should improve their business performances so they could generate larger dividends and taxes for the government to compensate for its increased interest servicing.
Although the new bonds carry longer maturity periods, they also offer higher interests rates. Per year, the government has to allocate Rp 823.67 billion in additional interest payments.
The government earlier said that around 65 percent of Rp 823.67 billion would be returned to the government's coffers through dividend payments.
The reprofiling of the bonds is seen as crucial in managing the government's huge domestic debt, as without any financial engineering the government faces a huge risk of sending the country into what analysts term a financial disaster.
The program will reduce the state budget's spending for debt servicing. Thus, there will be more funds available for other crucial expenses such as development spending.
However, while not only will it create larger interest payments, the plan will not resolve the government's huge public debt problems as it only shifts them to the next generation.
Critics have said the failure of the government to provide a clear-cut formula to deal with its debts, had forced them to come up with such a program.
The troubles began in the aftermath of the 1997-1998 financial crisis, when more than Rp 430 trillion worth of bonds were issued to finance the recapitalization of several ailing banks, including the four banks, under which the state budget has to cover the bonds' interests.
Some Rp 3.9 trillion has already matured this year, but starting 2004, a much larger chunk of the bonds will mature, peaking in 2009.
In 2009, for example, the government will have to allocate a staggering Rp 81.63 trillion in cash from the state budget to repay maturing bonds.