New restructuring plans won't ease debt: Experts

Dadan Wijaksana, The Jakarta Post, Jakarta

Plans to restructure the maturity profile of the government's bank recapitalization (recap) bonds will not be of much help in resolving the huge domestic debt problem as the move will only allow the government to extend the maturity period without actually reducing the value of the bonds, analysts have said.

"This would only delay the maturity period, as the actual value (of the bonds) would remain unchanged," banking analyst Ryan Kiryanto told The Jakarta Post on Monday.

Dradjat Wibowo also agreed by saying that the scheme was just another form of financial engineering.

"All these approaches only extend the maturity period of those bonds, but will not solve the real problems," he said on the sidelines of a seminar here.

The government plans to introduce a scheme that will allow it to exchange bonds maturing between 2004 and 2009 with ones that have a longer maturity profile but carry a higher interest rate.

Fuad Rachmany, head of the state bond management center at the Ministry of Finance, was reported by media as saying that the maturity profile of those bonds would be shifted to 2020, as part of efforts to ease the burden on the government.

The recap bonds, issued during the late 1990s crisis to bail out the faltering banking sector, have the potential to become a fiscal disaster -- especially starting in 2004 when a large chunk of them begins to mature.

The recap bonds, totaling some Rp 430 trillion (around US$48 billion), make up the lion's share of the government's domestic debts amounting to around Rp 660 trillion.

Fuad said that the government was making final preparations, with the official announcement of the new plan expected to made later this year.

So far, however, it remains unclear as to how much value of the bonds could be replaced by this new scheme, as it has to be discussed with banks holding the recap bonds.

As the move would increase the banks' risks of losses from potential revenues, the scheme would provide several incentives to them -- including a higher interest rate.

This would create more of a burden for the state budget, already constrained by its domestic debt servicing requirement.

As a comparison, the state budget has to allocate this year almost Rp 60 trillion for repaying interest on the recap bonds.

Nevertheless, Ryan generally welcomed the idea, saying this would at least give the cash-strapped government a breathing space.

"But in the meantime, the government needs to make the best of this, which is to collect enough ammunition to redeem all those recap bonds," Ryan said.