House approves issue of more bonds
House approves issue of more bonds
Dadan Wijaksana, The Jakarta Post, Jakarta
Despite a disappointing result in the last bond issue, the
House of Representatives approved on Wednesday a government plan
to issue an additional Rp 4 trillion (about US$473 million) in
bonds this year to help cover the wider-than-expected 2003 budget
deficit.
Approval was granted during a hearing between Minister of
Finance Boediono and House Commission IX on financial affairs.
The approval brings government bond issues for this year to a
total of Rp 11.7 trillion, as against an initial target of Rp 7.7
trillion.
The government submitted the new proposal upon learning that
this year's deficit would likely widen to 2 percent of the
country's gross domestic product (GDP), or Rp 35.1 trillion,
compared with the previous target of Rp 34.4 trillion or 1.8
percent of GDP.
The approval came in the light of the government's failure on
Tuesday to sell all its bonds due to insufficient demands.
The government had intended to sell Rp 5 trillion in bonds,
but it managed to sell only Rp 3.99 trillion.
Analysts attributed the lackluster demand to the long-term
maturity profile of the bonds. The bonds, carrying a weighted
average yield of 11.6 percent, are due to mature in December
2012.
The government earlier hoped to issue bonds worth Rp 5
trillion to help cover the 2003 budget deficit by retiring some
higher-yielding bonds issued during the crisis, which mature this
year.
The result of Tuesday's auction was in stark contrast to what
has been achieved by the government in past bond issues. In
April, the government issued its first bonds of the year, worth
Rp 2.7 trillion, which were 2.8 times oversubscribed.
A similar success story was also recorded late last year, when
some Rp 2 trillion-worth of bonds issued by the government were
also oversubscribed.
Tuesday's auction pushes the total value of state bonds issued
to Rp 6.7 trillion this year, meaning the government is still
allowed to issue bonds worth around Rp 5 trillion more in the
next three months or so.
Against the backdrop of the latest issue, the government needs
to change the maturity profile of its bonds in order to attract
investors, analysts said.
Bank Indonesia senior deputy governor Anwar Nasution backed
the idea, saying that investors might view long-term bonds as
less attractive because they carried a higher risk than short-
term ones.
"I think the idea to change the strategy (of the bond issue)
toward shorter-term bonds makes sense. I agree with cutting short
the maturity profile to a shorter one," Anwar said, without
naming the ideal maturity profile.
Boediono said the government was looking into the matter
closely to find the best solution for the next bond issue in
order to strike a balance between attracting enough investors and
not creating too much of a burden on the state budget.
A long-term maturity profile causes less burden on the state
budget, as the government will have more time to prepare payments
for the bonds.
All of the Rp 6.7 trillion-worth of bonds already issued carry
a maturity period of eight years to nine years.
The state budget has been heavily burdened by the government's
obligation to pay out on maturing bonds totaling about Rp 450
trillion, issued in the late 1990s to bail out troubled banks.