Govt considering global bond issue next year

The Jakarta Post, Jakarta

Minister of Finance Boediono said on Thursday the government was considering issuing sovereign bonds next year, as an alternative source of funding to help finance the 2004 state budget.

"That's an option that we are now still studying, there is no decision as yet," Boediono said on the sidelines of a hearing with the House of Representative budget commission to discuss the government's preliminary draft of the 2004 state budget.

Boediono said that the government would need to explore as many potential sources as possible for next year's budget financing, especially to help cover the deficit which has been earmarked at 1 percent of the country's gross domestic product (GDP).

The bond issue would be considered along with other options to finance the budget, which include optimizing potential revenue from both domestic sources, such as divestment and privatization, and foreign sources including seeking further soft-term loans from the Consultative Group on Indonesia (CGI) and a debt-swap arrangement with other creditor nations, he added.

Bank Indonesia senior deputy governor Anwar Nation welcomed the government's possible move to issue the global bonds, saying it was a feasible option.

When asked if the bonds would only increase the country's debt, Anwar said: "There is nothing wrong with foreign debt, what matters the most is how the money from the debt is spent. In the past, we used the money from foreign loans for non-productive purposes."

Should the plan materialize, which would be the first time since the financial crisis, it is expected that the bonds will be attractive to international investors, given the country's current stability in its macroeconomic indicators.

The stable rupiah, a manageable inflation and a declining trend in the central bank's benchmark interest rate would all serve as sweeteners for investors.

Unlike previous years, the government will face a much tougher task in financing the budget as it may not be able to rely on debt rescheduling facilities from the Paris Club and London Club in view of a possible termination of the current International Monetary Fund (IMF) program by the end of this year.

In the past, the government could always pin its hopes for debt rescheduling on the creditor groupings, which had greatly helped reduced government expenditure.

But the Paris Club and London Club require that Indonesia implement the IMF-sponsored program to be eligible for the debt rescheduling facility.

With an end to such facilities appearing very likely, the government will lose out on around US$3 billion in funds which would be otherwise available with the presence of the IMF.

Further pressure would also come from the Rp 24.7 trillion in public debts due during the year.

The 1 percent deficit was presented by the government on Wednesday to the House, along with other preliminary assumptions, including a 4 percent to 5 percent economic growth rate and a 7 percent to 8 percent inflation rate.