Govt to auction short-term bonds in December

JAKARTA (JP): The government will issue short-term bonds in December in a bid to further support the bank recapitalization program, according to director general of financial institutions at the Ministry of Finance Darmin Nasution.

Darmin said on Tuesday that proceeds from the 6 to 12-month bonds, which would be auctioned in the primary market, would be used to repurchase some of the government's longer-term bank recapitalization bonds.

Speaking to reporters following a meeting with Coordinating Minister for Economic Affairs Rizal Ramli, Darmin said that the issuance of the short-term securities was also part of an effort to develop the domestic bond market.

"The objective is to push the secondary (bond) market ... We'll start by auctioning short-term bonds," he said.

The government has so far issued more than Rp 400 trillion (US$45.97 billion) worth of bonds to help finance the country's bank recapitalization program.

The government had initially expected the recapitalized banks to be able to sell the bonds in the secondary market and that the bonds would be attractive to investors due to their longer maturity period.

The government bank recapitalization bonds mature in more than five years.

Darmin said that the auctioning of the short-term bonds would be implemented together with the auction of Bank Indonesia's three-month SBI promissory notes.

He was also optimistic that the recapitalized banks would participate in the auction.

"We will discuss the new plan with the recapitalized banks soon," he said.

Darmin declined to provide further details, arguing that the new measure was still being prepared by the debt management unit of the finance ministry and Bank Indonesia.

He said that the strategy would be published in October.

According to the latest government letter of intent (LoI) to the International Monetary Fund, the issuance of the short-term bonds is subject to the approval of the House of Representatives.

The LoI also said that the new measure was part of the overall government public debt management strategy.

According to the LoI, which basically outlines a set of government economic reform programs to be implemented within a certain period of time, the government is giving high priority to establishing sound debt management practices and developing the domestic bond market.

The units currently involved in debt management will work closely to consolidate existing debt management activities by the end of December.

By the same date, the government will submit to the House a draft act providing legal underpinnings for debt management, including a standing authority for debt service and authority for borrowing within the budget cycle.(rei)