Govt goes ahead with bond issue plan

The Jakarta Post, Jakarta

The government said on Friday it was moving ahead with its plans to issue new bonds later this month despite the ongoing war in Iraq which has caused jitters in the financial market.

Fuad Rahmany, head of state bonds management center, said that the bonds would likely carry a fixed interest rate to help maintain investor appetites for the bonds.

"It is most likely that the bonds (to be issued) will carry a fixed rate...we do not want to disappoint the market.

"Under the current market condition investors would look for bonds carrying fixed interests rate," Fuad said.

In addition to the war situation, the current declining trend in central bank benchmark interest rates will make bonds carrying variable rate less appealing.

The government has planned to issue a total of Rp 7.7 trillion (about US$ 845 million) in new bonds this year to help finance maturing government bonds. This has been approved by the House of Representatives.

It is still not yet clear how large the March bond issue will be.

But the government has said that it preferred to issue treasury bonds (with maturity periods of over 12 months) first rather than treasury bills (short-term bonds with maturity of less than 12 months).

Fuad said that the government wanted to set the maturity period of the new bonds at 8-10 years.

The government, late last year issued a successful treasury bill as it was oversubscribed. The purpose of the issue was also to finance maturing government bonds.

As of December last year, the government's domestic debt stood at Rp 650.4 trillion -- all in the form of bonds, with a large chunk of them maturing between 2004 and 2009. The huge debt is a result of the cost to bail out the banking industry during the late 1990s financial crisis.

The government has said that it must issue the bonds to avoid a fiscal disaster and maintain investor confidence.