House approves new law on bonds, govt to issue T-bills

The Jakarta Post, Jakarta

The House of Representatives on Tuesday approved the new law on bonds, paving the way for the government to issue new bonds to refinance maturing bonds.

The long-awaited approval was given during a plenary session which was attended by Minister of Finance Boediono.

Boediono later told reporters that the government would issue new bonds this year, which according to one estimate amount to Rp 13.54 trillion.

The new law on bonds will provide a legal basis for the government to issue new bonds called treasury bills or T-bills to help refinance maturing bonds. The old law on bonds dates back to 1950 and requires the government to retire its outstanding bonds, meaning that the bearers would have to be paid.

"The T-bills will be issued this year, but we haven't decided on the amount yet," he was quoted by Antara as saying. T-bills refer to government short term bonds with maturities of six months to 12 months.

He did not say when the bonds would be issued, but a source at the ministry said they would be issued gradually starting in November 2002.

The source said that some Rp 13.54 trillion worth of government bonds would mature in February and June next year.

The government issued some Rp 430 trillion worth of bonds in the late 1990s to recapitalize ailing banks.

The approval of the new law on bonds had been delayed several times due to various reasons.

Because of the delays, the government had to pay in cash for some Rp 3.9 trillion worth of bonds maturing in July. This was the first tranche of government bonds to mature.

The government obtained the cash from the Indonesian Bank Restructuring Agency (IBRA), which raised the money from selling various assets taken over from the troubled banking industry.

The government plans to issue new bonds to IBRA, a unit under the finance ministry, to repay the agency.

Meanwhile, Director General of Financial Institutions Darmin Nasution said that several conditions had still to be decided on before the new bonds were issued.

He pointed out that infrastructure and related regulations had yet to be prepared.

"I think we need another one month (for preparing to issue the new bonds," he said.

The issuance of the new bonds is part of the government strategy to manage its huge public debt. A larger chunk of the bonds will mature starting 2004 and will reach their peak in 2009. Without refinancing, the government will risk sending the country into a fiscal disaster as it would be impossible for the government to fully repay such a huge amount of debt.

Last week, state-owned banks also agreed to the government's plan to swap government bonds held by the banks with bonds carrying a longer maturity period but offering a higher interest rate.

The bond swap strategy will allow the government to extend the maturity period of bonds to beyond 2009, thus saving the state budget from having to allocate a huge sum of money to repay maturing bonds.

In 2009, for example, the government will have to allocate some Rp 80 trillion in cash from the state budget to repay maturing bonds. But, by issuing new bonds to replace the old ones, the burden on the state budget can be greatly eased.