Govt plans Rp 7.74 trillion in new bonds next year

Dadan Wijaksana, The Jakarta Post, Jakarta

Starting in January, the government is expected to issue new bonds to refinance Rp 7.47 trillion (around US$800 million) worth of recap bonds and those owed to the central bank, which are due to mature during the year.

Minister of Finance Boediono told a hearing with the House of Representatives' Commission IX on financial affairs that replacing maturing bonds with new ones, known as refinancing, would ease the burden on next year's state budget.

"We'll do the refinancing with bonds that carry long-term maturity periods and are worth between Rp 2 trillion to Rp 4 trillion, as well as short-term bonds or T-bills, amounting to Rp 5 trillion," Boediono told the hearing on Monday.

T-bills, or Treasury bills, are government bonds that mature within six to 12 months.

Next year, the government must pay Rp 14.84 trillion worth of maturing debts it owes to Bank Indonesia and a number of local banks.

Of that amount, some Rp 7.37 trillion would be paid using proceeds from state asset sales by the Indonesian Bank Restructuring Agency (IBRA). The remainder of which, the government plans to refinance.

Issuing the new bonds however simply defers the maturity dates, meaning the government must continue to pay interest on them.

Monday's meeting with Commission IX was meant to obtain legislator approval for the additional Rp 835 billion to Rp 970 billion in interest rates that the government must pay in order to refinance next year's maturing bonds.

However, it has become apparent that the government now has little choice other than to push back the payment on these bonds, given its tight state budget.

The government owes some $60 billion to local banks and Bank Indonesia following one of the world's costliest banking bailouts ever, during the 1997 economic crisis.

Banks received some Rp 430 trillion worth of recapitalization bonds, on which the government must pay some Rp 59 trillion in interest and Rp 3.9 trillion on maturing debts this year.

Bank Indonesia obtained another Rp 144 trillion in bonds to replace an equal amount of money the central bank had spent on local banks that were hit by massive runs during the crisis.

A large chunk of state bonds will start maturing in 2004 with the highest payment worth some Rp 81 trillion due by 2009.

Refinancing the bonds will help the government spread the massive debt payments to more affordable levels.

In another example of managing its huge public debts, the government has also requested that legislators delay the payments of Rp 174.59 trillion worth of recapitalization bonds to four state banks.

Under a scheme it called reprofiling, the government hopes to delay until 2020 the payment of recapitalization bonds payable between 2004 to 2010.

In return, the four state banks would receive higher interest payments worth around Rp 823 billion every year.

The four banks that have agreed to the scheme are Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Tabungan Negara (BTN) and Bank Negara Indonesia (BNI).

Together they hold Rp 231.62 trillion worth of recapitalization bonds.

Legislators however have voiced objections to the reprofiling plan, citing the increase in interest payments.

Boediono explained that the issuance of T-bills and reprofiling bonds were part of attempts to manage Indonesia's huge public debts.

With T-bills, the government also hopes to entice bond trading in the secondary market as their shorter maturity period made T- bills more attractive to investors.