Govt mulls global bond issue next year

Dadan Wijaksana, The Jakarta Post/Jakarta

After a successful global bond issue early this year, the government may again tap the international market next year by issuing new dollar-dominated bonds to help plug the 2005 budget deficit.

Anggito Abimanyu, head of the fiscal policy division at the Ministry of Finance, said the government was keeping a global bond issue as an option because of its low cost as compared to a domestic bond issue.

Market sentiment toward the country's economy and the cost of borrowing were among the main factors behind the option, he said.

"It is cheaper to raise foreign finances," Anggito told reporters on Thursday.

He did not cite the precise amount or timetable.

But, as stated in the newly unveiled 2005 draft budget, the government is planning to issue a total of Rp 50 trillion (some US$5.4 billion) worth of bonds next year as part of its deficit- financing scheme.

If the global issue plan materializes, it would be the third time the government carried out such a scheme. In 1996, it issued its maiden sovereign bond issue worth $400 million, due in 2006.

The second issue was carried out in March, when the government launched a $1 billion international bond issue, more than double the initial plan of $400 million following overwhelming demand from global investors.

The yield in the March issue was set at 6.85 percent, far lower than a yield of around 11 percent set in domestic bond issues at present.

The government is relying on the proceeds from those bond issues to fill the budget deficit, which next year is set at Rp 16.9 trillion, or 0.8 percent of gross domestic product (GDP).

For this year, the government plans to sell bonds amounting to Rp 32.5 trillion to help cover the deficit earmarked at Rp 24.4 trillion or 1.2 percent of GDP.

As for the market sentiment, some economists have said that the country needed to gain the confidence of international investors with concerns stemming from the general election expected to diminish by next year.

A more robust economic growth projection in 2005 and continued stability in macroeconomics indicators are also expected to entice foreign investors.

The country's economy is forecast to grow 4.8 percent and 5.4 percent this year and next respectively -- from 4.1 percent growth in 2003.