DPR agrees on bond reprofiling plan

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.