Government launches first bond issue of the year
Government launches first bond issue of the year
Dadan Wijaksana, The Jakarta Post, Jakarta
The government has issued eight-year bonds worth Rp 2.52
trillion (about US$295 million) on Tuesday, the first batch of
bond issues planned for this year to help finance the ailing
state budget.
Ministry of Finance debt management division head Fuad
Rachmany said the bond carried a weighted average yield of 11.82
percent and was 2.14 times oversubscribed.
"Thanks to a steady decline in domestic (interest) rates, the
yield was lower than the one we set for the last bond issue,"
Fuad said, referring to the Rp 3.2 trillion of bonds auctioned in
December last year.
At that time, the average yield stood at 13.05 percent.
The central bank, which conducted the auction, received bids
from banks and pension funds for yields from 11.65 percent to
12.7 percent for the bonds, which will mature on Dec. 15, 2012.
Over the past two years the government has issued bonds to
raise new funds to pay the state budget deficit. Its ability to
finance the deficit has been hampered by a huge debt burden --
the fallout from the collapse of the banking sector in 1998.
The government plans this year to issue Rp 28.5 trillion in
domestic bonds in addition to at least $400 million worth of
global bonds. The government issued Rp 11.7 trillion in domestic
bonds last year.
Fuad said provided the current declining trend in interest
rates continued, the next bond issues would carry a lower average
yield.
The government has issued new bonds to refinance maturing
ones.
During and after the late 1990s banking crisis, the government
issued more than Rp 600 trillion worth of bonds to bailout
troubled banks.
Taxpayers have had to cover most of this huge debt as the
Indonesian Bank Restructuring Agency (IBRA), which took over
assets from the banking sector, has managed to only recoup around
one third of their value.
A large chunk of the debts have started to mature, which for
this year alone, there are around Rp 25 trillion. In addition,
the state has allocated Rp 41.3 trillion from its budget to
service the domestic bonds.
If combined, these figures represent 86 percent of this year's
state budget allocation for spending on development.
Tuesday's bonds issue was meant to help finance these maturing
bonds.
Critics have said such a scheme, which extends the maturity
profile of those bonds, does not resolve chronic debt problems
but only shifts them to the next generations.