Government, House agree to issue more T-Bonds

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.