Government, House agree to issue more T-Bonds

Dadan Wijaksana, The Jakarta Post, Jakarta

The government is to issue more medium-term bonds, or T-bonds, rather than the planned short-term bonds, in response to a successful issuing of the bonds in April.

The new plan was approved by the House of Representatives on Wednesday.

Minister of Finance Boediono said the government preferred the T-Bonds not only because of the positive market reaction, but also because they are less of a burden on the cash-strapped state budget.

"So, we think that (issuing) T-bonds now will be better than T-bills," Boediono said. T-bills refers to bonds that matures between six months to a year.

He did not mention the size of T-bonds to be issued in the next batch, nor when they would be issued.

The government plans to issue a total of Rp 7.7 trillion (US$850 million) worth of bonds this year to help finance the state budget.

Initially, the government planned to issue Rp 2.7 trillion in T-bonds and the remainder in T-bills.

However, following the successful issuing of Rp 2.7 trillion in T-bonds in April, which met with a subscription rate triple the amount offered, the government has now changed its mind and wants to issue more T-bonds.

Analysts have said investors were attracted to the government bonds because it offered better returns compared to other investment alternatives.

The increasingly stable macroeconomic condition in the country has also lured foreign money to the government bonds.

Boediono was optimistic that the next T-bond issue would be similarly successful.

"The market is liquid enough to absorb the bonds. More importantly, we've seen capital inflow to the country, which will create another source of demand," Boediono said.

Issuing new bonds is part of the government's strategy to refinance bonds due to mature this year.

The refinancing scheme is aimed at managing the country's huge domestic debts, all in the form of government bonds, so as to secure a sustainable fiscal condition.

As of December last year, the country's domestic debts stood at Rp 650.4 trillion. The huge debts resulted from the costly government bailout of banks in the wake of the late 1990s financial crisis.

With huge portion of those debts beginning to mature, refinancing is the most feasible option in order to avoid defaulting on the loans.

This year, the government must pay Rp 14.84 trillion in maturing debts that it owes to local banks and to the central bank.

Of this amount, Rp 7.37 trillion will be paid using proceeds from the sale of assets held by the Indonesian Bank Restructuring Agency (IBRA).

It is the remainder that the government plans to refinance.