Next year wrong time to issue sovereign bonds: Economists

Next year wrong time to issue sovereign bonds: Economists

Fitri Wulandari, The Jakarta Post, Jakarta

Contrary to what some foreign investment bankers have suggested,
local economists say that early next year would not be the right
time to issue sovereign bonds given the country's low
international rating.

Economists Sri Mulyani Indrawati and Anton Gunawan both said
that issuing bonds in a low rating environment would be costly
for the government as investors would demand a huge discount to
cover the risk.

The country's current international rating is triple C, which
is below investment grade.

"Investors might be interested, but they would ask for a
discount because the low rating creates higher risk," said Anton,
an economist at Citibank office in Jakarta, over the weekend.

The government is considering issuing sovereign bonds as part
of a financing strategy for the 2004 state budget, amid the
prospect of shrinking financial assistance from foreign lenders
as the country's current International Monetary Fund (IMF)
program will end later this year. The government is facing
rising political pressure not to extend the IMF program, which
will cost the country around US$3 billion in debt rescheduling
facilities from the Paris Club of creditor nations and the London
Club of private lenders.

Some foreign investment bankers have reportedly told both the
government and central bank officials that the sovereign bond
issue could be launched as early as next year on the back of
strong interest from investors amid limited supply in the
international market, and positive data in the area of
macroeconomics.

But Sri said that issuing sovereign bonds was like selling an
image of a country, and if the rating was low, the proceeds from
the bond issue would not be optimal.

"If we (Indonesia) have a poor rating, investors can argue
that the bonds should be discounted because they will take into
account our export performance, stability, state budget deficit
and balance of payments," said Sri, who is also the IMF executive
director for the Southeast Asia region.

But proponents of the sovereign bond issue argue that the
country's rating would be raised once it stops seeking debt
rescheduling for its sovereign debts, a likely scenario under the
plan to terminate the IMF program.

Minister of Finance Boediono said the government had not yet
decided whether it would issue sovereign bonds next year, saying
it had yet to consider various options, including the impact of
the 2004 general election and the possible military strike in
Aceh on investor sentiment and the overall economy.

Anton said that in addition to pushing through privatization
and the asset sale program, and boosting tax revenue, the
government should intensify bilateral talks with main creditor
nations like Japan, and also through the Consultative Group on
Indonesia (CGI) to secure fresh loans and other kinds of support.

CGI is the country's traditional international donors
grouping.

If the planned bond issue is realized, it would be the
country's first sovereign offering since the 1997 economic
crisis.

In July 1996, the country issued Yankee bonds worth $400
million that mature in 2006.