Global bond to increase burden on state budget
Global bond to increase burden on state budget
The Jakarta post, Jakarta
State Minister for National Development Planning Kwik Kian Gie
criticized on Tuesday the government's plan to issue a global
bond this year as it ran contrary to the government's own pledge
to gradually reduce the country's debt stock.
The bond issue, expected to be worth US$400 million, would
only put more pressure on the state budget, which is already
heavily burdened by the government's obligation to service its
existing huge debt (both foreign and domestic).
"They (government) said it will reduce our foreign debt. So
why issue an international bond? It only means more debt," said
Kwik, who despite the collective nature of the Cabinet has never
been shy in attacking the policies of his fellow ministers.
Kwik said that his stance did not mean he was against foreign
debt, but he was concerned about the effectiveness of the way in
which the debt had been used and how it benefited the economy.
"Foreign debt can be defined as effective if it is used to
finance projects that can produce income that can be used to
repay it."
Even without the new burden, servicing the country's existing
debt has placed massive strains on the state budget. For 2004,
the state budget will have to fork out around Rp 24.4 trillion to
pay the interest on foreign debt alone, while Rp 44.4 trillion is
required to repay maturing foreign loans.
In total, this is greater than the Rp 68.1 trillion allocated
for development spending, and far in excess of the Rp 12 trillion
allocated this year to finance poverty-alleviation programs.
If this trend continues, Kwik said: "It's obvious that we will
have to seek more loans, and will keep go on going like this in
the years to come unless there is a strong will to significantly
reduce our national debt."
As of the second semester of last year, Indonesia's foreign
debt stood at some US$76 billion.
Despite Kwik's objection, however, it is highly unlikely the
government will scrap the plan.
On Tuesday, the Ministry of Finance appointed Deutsche Bank
and JP Morgan as the lead underwriters for the bond issue, the
first since 1996.
The issue is scheduled for early March, after a government
team completes its overseas road show to excite global investor
interest.
The lead underwriters were selected from six investment banks
proposed for the job. Citigroup, Credit Suisse First Boston,
Morgan Stanley and UBS were the other four.
Director General of Financial Institutions Darmin Nasution
told a press conference that the government had also appointed
U.K.-based Cleary, Gottlieb, Steen & Hamilton as the legal
advisers for the issue.
The government is planning to issue the bond as an alternative
source of funding to help finance the 2004 state budget deficit,
which it is estimated will come in at 1.2 percent of the
country's gross domestic product (GDP).
Investment banks have been predicting that the issue will be a
success, given the improvements that have taken place in the
country's economy.
Besides the global bond, the government also plans to issue
about Rp 28.5 trillion worth of domestic bonds this year.
A global corporate bond was launched earlier this month by
Excelcomindo Pratama, the country's third largest cell phone
operator, which yielded $350 million in proceeds.