Govt repays bonds in cash

Dadan Wijaksana, The Jakarta Post, Jakarta

The government said it had repaid in cash some Rp 3.9 trillion (US$431 million) worth of bank recapitalization bonds maturing on Thursday by using part of proceeds from the sale of assets under the Indonesian Bank Restructuring Agency (IBRA).

"Yes, we made the payment in cash for the bonds just in time," Anggito Abimanyu, a senior official at the Ministry of Finance, told The Jakarta Post.

Anggito's statement was confirmed by an official at Bank Indonesia, saying the central bank had received official notification from the ministry to use the funds from a government's account at the central bank.

The government issued around Rp 430 trillion-worth of bonds in the late 1990s to finance the recapitalization of several ailing banks. The first tranche of bonds to mature is worth Rp 3.9 trillion.

Reports said that most of these bonds were held by Bank Central Asia (BCA).

The government has previously said it would later issue bonds worth Rp 3.9 trillion to replace the proceeds taken from IBRA. The House of Representatives has given its approval on the bond issuance plan.

There had been concerns expressed earlier that the cash- strapped government might be unable to repay the maturing bonds.

The government had initially planned to issue treasury bills (T-bills), a special type of bond with a maturity period of 6 months to 12 months, to refinance the maturing bonds.

This could not be done as the House has yet to pass the bill on sovereign debt securities into law, which would provide a legal basis for the T-bills.

After that, lawmakers also blocked the government's plans to use funds designed for an emergency.

Although the payout on the bonds to mature first has now been made, it is highly unlikely that the government will simply relax and sit back, as analysts have warned of a possible financial disaster if the government fails to take measures to overcome its huge domestic debt problem.

Next year, the financial commitment on maturing bonds will increase to around Rp 13.5 trillion. Starting in 2004, a large proportion of the bank recap bonds will start maturing, even more than hitherto.

This will peak in 2009, when the government has to cover the redemption of more than Rp 80 trillion-worth of bonds.

Managing and restructuring this huge public debt has been one of the most difficult problems faced by the government.

This debt payment has certainly limited state spending on the development program. This year alone, some Rp 59 trillion has been allocated to cover the interest on recap bonds, which accounts for 70 percent of this year's debt repayments.

IBRA has been targeted to rake in Rp 42.8 trillion in cash and bonds this year from the sale of its assets.

The cash is supposed to finance the state budget deficit, estimated to be around Rp 42 trillion.