Govt may issue less debt this year

The Jakarta Post, Jakarta

The government may reduce the size of the domestic bond issue for this year due to current volatility in the financial market, says Minister of Finance Boediono.

Boediono stressed, however, that the move would not create financing problems for the 2004 state budget because the government had extra funds, primarily from the sale of assets by the Indonesian Bank Restructuring Agency (IBRA) last year. IBRA was shut down in February this year.

According to Anggito Abimanyu, a senior official at the ministry, the government currently has some Rp 9 trillion in reserve funds, derived mainly from IBRA money.

The government, via the Ministry of Finance, had planned to sell treasury bonds every month this year to help finance the state budget deficit, which is estimated at Rp 24.4 trillion (about US$2.60 billion), or about 1.2 percent of gross domestic product.

The government plans to issue domestic bonds worth about Rp 24 trillion this year.

However, on Thursday, the government canceled the bond issue for June due to the current volatility in the financial market, as the rupiah has plunged and pressure for a hike in interest has intensified.

Last month, the government also dropped the planned sale of Rp 3.5 trillion-worth of 15-year bonds as investors demanded an overly high yield. This was attributable to rising uncertainty in the financial market as investors started to switch to dollar- based assets, given a looming interest rate hike in the U.S., concern at the impact of a slowdown in China, rising oil prices and political uncertainty at home ahead of the July 5 presidential election.

So far, the government has issued domestic bonds worth only Rp 7.5 trillion. In March, the government issued around $1 billion- worth of international bonds, the first sovereign issue since the country plunged into the 1998 regional financial crisis. The issue was oversubscribed amid positive market perception about the Indonesian economy at the time, as the government seemed to have been successful in stabilizing the fiscal and monetary situation.

Bank Indonesia has recommended the finance ministry proceed with the bond issue for June as current monetary conditions are not as bad as commonly perceived.