Govt buys back Rp 1.96t in domestic bonds

Urip Hudiono, The Jakarta Post, Jakarta

The government bought back some Rp 1.96 trillion (US$230 million)-worth of bonds from institutional investors in an auction on Thursday.

The bonds will mature between 2004 and 2010.

Minister of Finance Boediono said that the buyback was part of a strategy to reduce the state budget deficit.

The government issued a total Rp 600 trillion-worth of bonds to bail out the country's crumbling banking sector following the 1997 economic crisis.

The state budget has been heavily burdened in covering the interest on the bonds.

Boediono said that the government planned to buy back more bonds this year, but declined to disclose the timetable or the amount.

In addition to the buyback strategy, the government is also planning a debt-switch scheme, in which investors are offered an option to swap maturing bonds they currently own with newly issued ones.

"We are still considering the scheme and the amount, which can hopefully be finalized this year," said Boediono.

The government is also planning to issue a total Rp 24 trillion-worth of bonds this year, to carry a lower interest rate than those issued in the wake of the crisis.

Analysts have said that a reduction in the government public debt should help improve the country's sovereign rating.

During Thursday's auction, 15 banks and four securities firms offered some Rp 7.14 trillion-worth of bonds for sale to the government.

"The government chose to only buy bonds that were considered to be the most profitable in terms of their price and yield," Director General of Financial Institutions Darmin Nasution said.

"After taking account of the bonds' accrued interest, the amount to be paid by the government will therefore be Rp 1.89 trillion," he said.

A total Rp 1 trillion in funds for the buyback would be taken from this year's state budget, said Darmin, while the remainder would be taken from government funds recovered from regional development banks (BPD).

Settlement of the buyback, he continued, would be carried out on Mar. 30 using Bank Indonesia's new settlement system (BI- SSSS). The auction ran from 10 a.m. to 1 p.m., with BI using the Ministry of Finance's Dealing System (MOFiDS).