No more bond issues, House tells govt

Urip Hudiono, The Jakarta Post, Jakarta

Citing questionable debt management, the House of Representatives has asked the government to hold off on further bond issues or buyback plans until it has discussed a comprehensive debt strategy for the country, in a series of meetings expected to start next week.

The request may hamper the government in its race to finance this year's budget shortfall through bond offerings -- including another global bond sale by the end of the year -- as well as its reprofiling of the securities' payment burden through repurchasing and extensions, at a time when the market is in a favorable situation.

Deputy chairman of House Commission XI for financial affairs Max Moein said in a hearing on Monday with the finance ministry's director general of the treasury, Mulia P. Nasution, that the commission had decided to postpone all bond-related transactions.

"The government must first explain the current condition of our debt stock, and what it plans to do about it, so as not to disturb the budget's fiscal sustainability and the nation's welfare development priorities," he said.

The commission is expected to hold a hearing on the matter with Minister of Finance Jusuf Anwar, State Minister for National Development Planning Sri Mulyani Indrawati and Bank Indonesia Governor Burhanuddin Abdullah on Sept. 20.

Data from the finance ministry's Directorate General of the Treasury shows that the government had as of Sept. 1 issued a total of Rp 30.5 trillion (US$3 billion) worth of bonds this year.

Included in the offerings was a $1 billion global bond sale in April, the country's third dollar-denominated bond issue after last year's $1 billion and 1994's $400 million issues.

The government -- with the House's previous approval -- is targeting Rp 43.3 trillion in bond issues this year to help plug the budget deficit. Of this amount, Rp 21.2 trillion will be used to pay off and buy back a critically burdening bulk of securities maturing between 2007 and 2009.

With the current balance, the government hopes to raise another Rp 12.7 trillion, with the possibility of offering its more lucrative global bonds, considering investors' lately decreasing interest in its local bonds.

Commenting on the commission's request, Mulia lamented the decision but said the ministry would have to comply with it.

"Holding off our next bond issue is still reasonable, but that is not the case for the buyback," he said. "The market's current bearish mood would be the right time for the government to do a buyback."

A buyback system allows the government to redeem bonds which have yet to mature, so as to ease debt payments in the future.

A senior official at the directorate general, Rahmat Waluyanto, said the rupiah's recent slump and rising interest rates could pose additional payment burdens.

"Every Rp 100 weakening of the rupiah will cost Rp 675 billion more in interest payments," he said. Every 1 percent increase in Bank Indonesia's three-month SBI note rate will cost an additional Rp 2.2 trillion.

The rupiah has depreciated by some 10 percent this year, while the rate for the notes has increased to 9.25 percent from 7.3 percent at the beginning of the year.