Govt plans to issue short-term bonds

JAKARTA (JP): The government plans to issue six to 12-month bonds in April this year to replace part of the outstanding government bank recapitalization bonds, according to director general of financial institutions Darmin Nasution.

Darmin said on Thursday the measure would ease the pressure on the state budget when the majority of the outstanding government bonds mature in 2004.

"The objective of the issuance of the short-term bonds is to restructure the maturity period of the long-term government bonds ... so that the state budget will not be in a difficult position," he told reporters on the sidelines of a meeting with the House of Representatives.

Darmin said the government had yet to discuss with Bank Indonesia the size of the planned bonds issue.

The government has issued around Rp 430 trillion (US$46 billion) worth of bonds to help finance the recapitalization of the country's ailing banking sector.

Economists have warned that the government must be able to retire part of its outstanding bonds within the next two years to avoid risking another economic crisis.

They pointed out that in 2004, more than Rp 70 trillion of the bonds would mature and become unbearable for the state budget. The burden will be even heavier as some of the loans owed to the International Monetary Fund will also mature at the same time.

Experts have said that Indonesia might not obtain another debt rescheduling from its traditional creditor countries amid rising oil prices and the expected slower economic growth of the developed nations.

Darmin said the government would propose a draft law on bonds to the House of Representatives next month.

He said the law would become a legal basis for the government to issue bonds in the future.

He said the draft law was expected to be approved by the House in March, before the issuance of the short-term treasury bonds.

"The law will ensure that the government does not default on its bond payment," Darmin said.

The government is also preparing various measures to help activate the trading of government bonds in the secondary market.

The finance ministry plans to issue a new ruling to allow pension funds to invest up to 100 percent of their money in government bonds.

Currently, investment in a single bonds issue by pension funds is limited to 20 percent.

Darmin said his office was also in discussion with the tax office over the controversial 0.03 percent transaction tax on government bonds.

He declined to say whether the tax would be dropped, but admitted that the administration of the transaction tax would be very difficult to do once the secondary market became more active.

Market players have called on the government to drop the transaction tax to make the secondary market more active.

Separately, Darmin said the government would propose, to the legislature in June, a bill for the establishment of a financial institutions supervisory agency.

He said the independent supervisory agency would oversee the country's banking sector, capital market, insurance, pension funds and leasing companies.

He said the government hoped the new agency, which would take over Bank Indonesia's banking supervisory tasks, could be formed sometime in 2002.(rei)