Government firm on July bond issue

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.