Government, House agree on reduction of outstanding bonds

Government, House agree on reduction of outstanding bonds

JAKARTA (JP): The government and the House of Representatives
agreed on Tuesday to reduce the amount of the government bank
recapitalization bonds by Rp 10 trillion (US$1.07 billion) next
year to ease the burden on the 2001 state budget.

The director general of the state budget, Anshari Ritonga,
said the reduction would be made by allowing recapitalized banks
to exchange part of their bonds with performing bank loans held
by the Indonesian Bank Restructuring Agency (IBRA).

"The reduction (of the outstanding bonds) will ease the burden
on the state budget," he said on the sidelines of a closed-door
meeting of the joint government-legislature budget committee.

The government has issued around Rp 650 trillion worth of
bonds to finance the bank recapitalization and bailout program.

The state budget covers the interest rate of the bonds, and
for the 2001 budget year this cost has been forecast at more than
Rp 55 trillion, which would make it the largest contributor to
the estimated budget deficit of some 3.7 percent of gross
domestic product.

Legislators have pressured the government to reduce the
outstanding bonds to lower the burden on the state budget. The
House initially demanded a reduction of around Rp 20 trillion in
the cost borne by the budget.

Legislator Aberson Marle Sihaloho, a member of the House
budget committee, said IBRA initially demanded its cash target
for next year be reduced to Rp 18.9 trillion before it would
agree to the deal.

But Aberson said the government needed IBRA to raise Rp 27
trillion in cash next year to help finance the budget deficit.

He said that by retiring Rp 10 trillion of the bonds plus the
recent agreement with Bank Indonesia to take over Rp 24.5
trillion of the government bonds, the interest cost for next
year's budget would decline to around Rp 53.5 trillion.

IBRA is expected to raise Rp 27 trillion next year through the
sale of various bank assets under its control. The agency is on
track to meet this year's revenue target of Rp 18.9 trillion.

The agency manages around Rp 260 trillion in nonperforming
loans transferred from recapitalized and closed banks. Some of
these loans have been restructured by the agency.

Instead of injecting cash into ailing banks, the government
recapitalized domestic banks by injecting bonds. Several
recapitalized banks earlier expressed interest in exchanging part
of their bonds with the restructured loans under IBRA's control
to allow them to resume lending.

But experts have said there was a risk the capital adequacy
ratio (CAR) of the recapitalized banks would deteriorate if the
risk-free government bonds were exchanged with the IBRA loans,
particularly given the continued uncertainty in the overall
economy.

In other matters, Anshari said the budget committee also
agreed to lower the government fuel subsidy for next year to Rp
31.5 trillion from Rp 36.4 trillion.

The government raised fuel prices by an average of 12 percent
in October to reduce the fuel subsidy in the 2000 state budget.

The government must reduce the subsidy as part of the overall
economic reform program agreed to with the International Monetary
Fund, but the reduction must be made gradually because fuel is a
politically sensitive commodity in the country.

The government and the House also agreed on Monday to revise
some economic assumptions in the 2001 state budget.

The exchange rate assumption has been revised to Rp 7,800 per
US dollar from Rp 7,300. The price of oil also was revised to
US$24 per barrel from $22.

The director general of taxation, Machmud Sidik, said the
change of the exchange rate assumption would increase the tax
revenue target for next year to Rp 179.89 trillion from the
initial target of Rp 173 trillion. (rei)