Government to resume bond issue

The Jakarta Post, Jakarta

The government announced on Friday it would sell Rp 2 trillion- worth of treasury bonds at an auction on July 27.

Minister of Finance Boediono told a media conference that the indicative yield for the eight-year bonds was 11 percent.

The government canceled planned bond issues in May and June due to poor market conditions at a time when the rupiah was under strong pressure amid uncertainty in the run-up to the July 5 presidential election, and a massive investment switch by investors to dollar-based assets ahead of a planned increase in the U.S. interest rate. The drop in the rupiah has created inflationary fears, prompting bond investors to demand higher yields.

However, following the relatively peaceful and smooth election, and the moderate increase in U.S. rates, the rupiah has recently started to stabilize, creating more favorable conditions for issuing bonds.

The government plans to issue a total of Rp 32.5 trillion- worth of bonds this year to help repay a huge domestic debt that resulted from the costly bank bailout program in the late 1990s.

It aims to issue bonds each month. So far the government has issued around Rp 16 trillion-worth of bonds.

The government sold in March $1 billion in global bonds, more than double its planned $400 million offering, due to strong overseas demand.

Meanwhile, the International Monetary Fund said in a media statement that Indonesia was on track to meet a 4.8 percent economic growth target for this year, driven mainly by domestic consumption and improving global economic conditions.

But the fund said the poor investment climate remained a matter of concern.

The statement was issued following a recent visit by the IMF special team for the postmonitoring program of the country's economy, which, late last year, marked the end of the IMF bailout program.

The fund also said that maintaining hard-won macroeconomic stability should also become a priority, as inflation this year could reach 7 percent, exceeding the government's target of 6.5 percent, due to the recent drop in the rupiah.

The local unit has so far fallen by around 6 percent this year. The weak currency makes imported raw materials more expensive.

The IMF also said the financial sector had continued to strengthen and profitability in the banking sector had improved.

Current account is expected to remain in surplus this year, at around 2.5 percent of gross domestic product, it added.

But "going forward, further efforts will be needed, not only to improve certainty in the legal system, but more broadly to address a variety of other weakness in the investment climate," the IMF was quoted by Dow Jones as saying.