Govt to redeem some $4.6b worth of bonds this year

Dadan Wijaksana, The Jakarta Post, Jakarta

The government aims to redeem some Rp 43.4 trillion (US$4.6 billion) worth of bonds this year in a bid to reduce the huge amount of sovereign debt and minimize the risk of a fiscal disaster.

Minister of Finance Boediono said on Wednesday that the bond redemption plan would be conducted via various schemes including asset-to-bond swaps and a buy-back program.

Part of the government's proceeds from the privatization program and sale of assets under the Indonesian Bank Restructuring Agency (IBRA) would be used to finance the buy-back program, he said.

"These efforts are all aimed at bring debt costs to a more controllable level to ensure fiscal sustainability in the long run," Boediono said in a press release.

The statement added that by using the same methods, the government managed last year to reduce the value of its outstanding bonds by Rp 15.75 trillion, Rp 8.7 trillion of which was contributed by the IBRA bond-to-asset swap program.

The government has had to come up with the bond redemption policy so as to help reduce the costly burden of the nation's sovereign debt on the state budget.

Currently, the government owes some Rp 660 trillion worth of bonds to local banks and Bank Indonesia following one of the world's costliest banking bailouts ever following the 1997 regional financial crisis.

Local banks received some Rp 430 trillion of recapitalization bonds, on which the government must pay more than Rp 60 trillion annually in interest alone.

The government owes the remainder to Bank Indonesia, which channeled some Rp 144 trillion to help ailing banks in the wake of the crisis.

Elsewhere, Boediono said that the government would go ahead with its plan to issue some Rp 7.7 trillion worth of bonds this year to repay maturing bonds.

This year, the government must pay Rp 14.84 trillion worth of maturing debts it owes to Bank Indonesia and a number of local banks. Of that amount, some Rp 7.37 trillion will be paid using the proceeds of IBRA asset sales.

It is the remainder that the government plans to refinance.

Last year, the government issued bonds with longer maturities to replace some Rp 174.5 trillion worth of maturing bonds held by four state-owned banks. This "reprofiling" strategy allowed the government to put back the maturity date of the bonds from 2004 to 2010.

The four banks were Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Tabungan Negara (BTN) and Bank Negara Indonesia (BNI). Together they hold Rp 231.62 trillion worth of recap bonds.