Government firm on July bond issue

Dadan Wijaksana, Jakarta

Emboldened by the limited impact of the U.S. Federal Reserve rate hike and the peaceful month-long presidential election campaign, the government is determined to move ahead with plans to launch its fourth bond issue of the year later this month.

While acknowledging there were possible risks from the elections, the government expects an improved market atmosphere after the July 5 vote, Minister of Finance Boediono said on Friday.

"We expect better market response post-election. After the first round (of the presidential election), the market sentiment will surely improve because it will reduce the uncertainty," Boediono said.

He said the Fed rate hike had not had an adverse impact on the market, as seen in the prevailing bullish sentiment in the market.

The government, via the finance ministry, had planned to issue treasury bonds every month this year to help finance the state budget deficit, which is estimated at Rp 24.4 trillion (some US$2.60 billion), or about 1.2 percent of gross domestic product.

In past years, the government has issued bonds to raise fresh funds to plug the budget deficit, whose financing ability has been burdened by huge debt payments -- mostly on domestic debts.

However, last month, the government canceled its bond issue due to volatility in the financial markets. In May, the government also dropped the planned sale of Rp 3.5 trillion worth of 15-year bonds because investors were demanding an overly high yield.

The cancellation was attributed to uncertainty in the market as investors began to switch to dollar-based assets because of the looming interest rate hike in the U.S., rising oil prices and political uncertainty at home stemming from the presidential election.

So far this year, the government has issued domestic bonds worth Rp 7.5 trillion.

Boediono expressed confidence the situation has begun to improve, with expectations of a trouble-free election and the limited impact of the U.S. rate increase.

Seemingly justifying Boediono's optimism, the stock market and the rupiah performed well on Friday, two days after the U.S. rate hike.

The stock market index ended 2.09 percent higher on Friday, closing at 745.03 points on volume of 1.60 billion shares valued at Rp 850.54 billion.

The rupiah fared even better. It reached its highest level in six weeks, closing at 9,155 to the US dollar from 9,305 on Thursday.

Dealers attributed the bullish sentiment to the market's confidence that the presidential election would be peaceful and that the impact of the U.S. interest rate hike would be contained.

Some 155 million registered voters are expected to cast their votes on July 5.

If none of the five presidential candidates wins a simple majority, the top two candidates will be involved in a second round of voting on Sept. 20.