Govt to swap bank recapitalization bonds: Minister

JAKARTA (JP): The government plans to reduce the country's bank recapitalization bonds by swapping some for performing loans under the management of the Indonesian Bank Restructuring Agency (IBRA), Minister of Finance Bambang Sudibyo said on Tuesday.

Bambang said the new measure was aimed at helping to create a more liquid secondary market for the bonds and to reduce the burden of the state budget in covering the bonds' interest rate.

"We are still designing the new policy. We'll implement it immediately," he said at a conference on the government bond market.

Bambang said the bonds were estimated to reach Rp 430 trillion in October. He said the size of the bonds was too big to be absorbed by the domestic bond market.

"The Rp 430 trillion worth of bonds is too large (for the secondary market). We have to reduce it to make the bonds tradable," he said.

"We are now designing a new policy that will reduce the size of the bonds by swapping them for nonperforming loans (NPLs), which have been restructured and have become performing," he said.

He added that the size of the NPLs under IBRA was Rp 213 trillion or around half the size of the bonds.

IBRA received the NPLs from closed banks and recapitalized banks. The agency has been mandated to restructure and recover the loans.

The government has so far issued some Rp 374 trillion worth of bonds to help finance the bank recapitalization program. The bonds are being injected into recapitalized banks.

In addition to the interest rate of the bonds, the banks are expected to receive cash by selling the bonds on the secondary market. The cash is expected to allow the banks to resume lending to the beleaguered real sector.

But so far, only Rp 2.16 trillion of the bonds have been listed and are being traded on the Surabaya Stock Exchange's over-the-counter transactions. Total transactions for March were only about Rp 6 billion.

The government has ruled that banks can now only sell a maximum 10 percent of the bonds they receive.

"The market has been very thin and inactive," Bambang said.

Experts have said there are various factors causing the secondary bond market to be inactive, including the limited capacity of the market to absorb the bonds.

Bambang also said the reduction of bank recapitalization bonds would help ease the pressure on the state budget.

A larger part of the bonds carries a variable interest rate linked to the rate of three-month Bank Indonesia promissory notes (SBIs).

The SBI interest rate has been increasing over the past couple months due to the weakening of the rupiah to the U.S. dollar, which in turn is causing concern of further pressure on the state budget.

In the current budget year, the government has to allocate Rp 38 trillion to cover the interest rate of bank recapitalization bonds.

Half of that is expected to come from IBRA through the sale of its various assets.

Bambang said the government was committed to developing a domestic secondary bond market, not only in respect to the bank recapitalization program but also to help the country reduce its dependency on foreign financing.

He said a huge amount of foreign loans threatened the country's balance of payment and was a source of the rupiah's volatility.

Bambang added that developing a secondary bond market would also help provincial administrations, which are to enjoy autonomy starting next year, to seek financing for their budget deficit.(rei)