Govt to prioritize issuing rupiah bonds

The Jakarta Post, Jakarta

The government will prioritize issuing bonds in the local rupiah currency as part of a more prudent debt management strategy, a finance ministry official said, hinting at the possibility that it might offer global bonds less frequently in the future.

The Ministry of Finance's Director General of the Treasury, Mulia Nasution, told reporters on Thursday that the government sees a growing need to offer more local, rupiah-denominated bonds in the future, rather than overseas, dollar-denominated ones -- and even reduce the latter's contribution to only 25 percent of Indonesia's securities portfolio -- for the sake of the country's financial sustainability.

"It will help reduce the risk exposure towards our bond portfolio, as well as towards the rupiah itself," he said, referring to the ratio between local bonds and global bonds, which currently stands at 50:50.

"It will also increase our financial independence and help our efforts to gradually reduce the budget deficit by reducing the overseas contribution to financing the budget."

However, Mulia said that for this to happen, Indonesia would have to continue developing its local bond market, whose daily trading volume currently averages some Rp 2 trillion.

The government's total debt as of March 2005 amounted to Rp 1,282 trillion (some US$128 billion) -- or 52 percent of Indonesia's gross domestic product (GDP) -- of which 52 percent takes the form of securities, with the rest being made up of bilateral and multilateral loans. Similarly, half of the debts are in foreign currency, owed to overseas creditors.

The government hopes to raise Rp 24.8 trillion from net bond sales next year, up from Rp 22 trillion this year.

Indonesia has issued global bonds four times, with a total value of US$3.9 billion, all of which were eagerly snapped up by the international securities market.

The government held two global bond sales this year, worth $1.5 billion in October and $1 billion in April, following a $1 billion sale in March last year. Indonesia's maiden global bond sale was worth $400 million in 1999.

The government has, however, been criticized for relying too much on overseas debts, including overseas bonds, whose principal and interest payments could strain the budget, particularly at a time of weakness in the rupiah and rising interest rates.

It is therefore targeting the lowering of Indonesia's debt ratio to 43 percent by next year, from some 49 percent this year.