Govt buys back Rp 3.21t in bonds

The Jakarta Post, Jakarta

The government on Tuesday repurchased some Rp 3.21 trillion (about US$392 million) of its outstanding bonds through an auction, the director general of financial institutions at the Ministry of Finance, Darmin Nasution, said.

The amount, however, was much lower than the Rp 13.5 trillion allocated for the buyback. Darmin did not explain the reasons for the lower-than-expected transaction volume.

The government has allocated the above budget to buy back part of the bonds maturing between Jan. 1, 2004, and Dec. 31, 2006, which total around Rp 76 trillion.

The strategy is part of the effort to reduce the burden of the state budget in covering the interest on the government's domestic debts, which resulted from the huge cost of bailing out banks during the late 1990s financial crisis. At the time the government issued more than Rp 450 trillion worth of bonds to help recapitalize ailing banks.

Darmin said that in the near future the government would still buy back more bonds using the remaining funds.

The ministry said that it had received some Rp 15.65 trillion in bids during Tuesday's auction, which was completed before a bomb exploded at a luxury hotel in Jakarta, killing at least 10 people and injuring many others.

A number of analysts had previously predicted that many bondholders would sell their bonds amid declines in the Bank Indonesia benchmark interest rate. Some of the bonds carry variable interest rates linked to the central bank benchmark rate. On the other hand, investors would tend to hold on to bonds carrying fixed interest rates.

But the government has said that the amount of the bonds to be repurchased would depend on the bids by investors.