Govt tells House bond 'reprofiling' plan best option
The Jakarta Post Jakarta
The government told skeptical legislators on Tuesday that paying banks higher interest rates to defer payments on some US$18 billion worth of maturing bonds was the best way to prevent a budget blowout over the next years.
Reprofiling, which pushes back bond maturity dates, emerged as the better option against five others, said Finance Minister Boediono.
"The reprofiling we suggest is the best option, and it can be done within a short time," Boediono told legislators in a hearing with House of Representatives Commission IX on finance and development, as quoted by detik.com.
With reprofiling, the government hopes to push back until 2020 the payment of recapitalization bonds worth Rp 174.59 trillion (about $18.97 billion) at four state banks. The bonds are due to mature from 2004 to 2009.
More than Rp 430 trillion-worth of recapitalization bonds were injected into local banks to prevent them from collapsing under a mountain of bad debt during the 1997 economic crisis. The government injected Bank Indonesia with 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.
Bankers have reportedly misused almost all of Bank Indonesia's liquidity loans, leaving the banking sector still in disarray five years after the crisis.
Now the interest on these bonds eats into the meager state budget, and Boediono said the government had no money to pay off a wave of maturing bonds over the next few years.
Most of the bonds would start maturing next year, with the highest payment, worth Rp 81 trillion, due by 2009.
Commission IX, however, remains divided over the reprofiling scheme as some legislators disagreed with the higher interest rates the government would have to agree to in return for delaying payments.
Should it approve the plan, the government will need to fork out another Rp 835 billion to Rp 970 billion in annual interest payments to the four banks.
Boediono explained that around 65 percent of that amount would be paid back as income taxes and dividend payments.
"There is disagreement with some of us (legislators)," said Commission IX vice chairman Faisal Baasir, as quoted by Metro TV.
"They have asked whether there's really no other way," he said.
Five options, apart from the reprofiling scheme, were drawn up by the National Development Planning Agency (Bappenas).
While Boediono insisted that the reprofiling scheme was better, one of the five other options, the asset-to-bond swap scheme, was acceptable, but already in use.
The latter requires the Indonesian Bank Restructuring Agency (IBRA) return loans that it took over from ailing banks during the crisis and swap them with recapitalization bonds.
Although workable, the amount and speed with which IBRA could redeem banks' recapitalization bonds using restructured loans was considered insufficient to avert a budget blowout.