Pension funds plan to shift investment in bonds

Pension funds plan to shift investment in bonds

By Reiner S

JAKARTA (JP): Local pension funds plan to invest more of their
money in bonds this year as government bank recapitalization
bonds now offer a better yield.

The investment director of state-owned PT Jamsostek, Andi R.
Alamsyah, said that the pension company would boost its
investment in bonds by more than 200 percent this year to about
Rp 3 trillion (US$323 million) compared to only Rp 969 billion
last year.

"Government bonds are now more attractive than time deposits
because they offer a better yield," Andi told The Jakarta Post on
the sidelines of a hearing late last week of House of
Representatives Commission IX on finance and the state budget.

He pointed out that the yield from government bonds would be
more than 18 percent compared to the monthly interest rate of
time deposits of about 14 percent.

He said that Jamsostek would reduce its investment in bank
time deposits to 70 percent from 80 percent of its total funds.

Last year, Rp 9.2 trillion in funds were invested in time
deposits, mostly at state banks, while the remainder was invested
in stocks and A-rating corporate bonds.

The finance ministry will soon issue a new ruling to allow
local pension funds to invest up to 100 percent of their money in
government bonds to help activate the trading of the bonds in the
secondary market.

Currently, pension funds can only invest 20 percent of their
money in a single bond issue in order to spread the risk. But
government bonds are deemed to be a risk-free investment.

The government has issued about Rp 430 trillion worth of bonds
to help finance the country's bank recapitalization program.

The bonds, which have varying maturity periods, carry a fixed
interest rate of 12 percent and a variable interest rate linked
to the interest rate of Bank Indonesia's SBI promissory notes.

In December last year, the government issued a new ruling
allowing banks to exchange part of their fixed rate bonds with
staple bonds, which partly carry a higher interest rate of 16.5
percent, to lure investors.

The amount of money managed by pension funds in 1999 totaled
Rp 27 trillion. Most was invested in bank time deposits.

President of another state-owned pension fund company, PT
Taspen, Ahmad Subianto also hinted that the firm would invest
more of its money in bonds, particularly government bonds, this
year.

"But we'll see what the condition is first. If bonds are
really that good, we'll go for it," he said.

"We still want to keep at least 50 percent of our money in
time deposits because deposits are more liquid than bonds," he
added.

Ahmad said that Taspen managed around Rp 15 trillion funds
last year, with about 80 percent invested in time deposits.

Ahmad also suggested that the government eliminate the 0.03
transaction tax to make investment in bonds more attractive.

Jamsostek's Andi agreed. "I think the 0.03 percent tax must be
removed to make bonds more attractive."

Director general of financial institutions Darmin Nasution
said last week that his office was in discussion with the
directorate general of taxation on whether the transaction tax
should be eliminated.

According to Andi, investing money in the equity market for
the time being is not so promising due to the high risk.

"We'll not buy stock rights now, although some people are
recommending that it's time to buy stocks ... We want to stay out
of trouble," Andi said.

Ahmad said that Taspen would not invest in stocks either.

He said the company planned to divest all of its investment in
publicly listed companies as demanded by the finance ministry.

Taspen has invested in around 12 companies, including publicly
listed firms. The finance ministry has instructed Taspen to
divest the investment.

One of Taspen's investments is in publicly listed timber giant
PT Barito Pacific Timber (BPT). The company has more than 105
million shares in BPT.

Ahmad declined to say when Taspen would sell its BPT shares.

"We'll only sell when the share price has reached the level at
which we made the purchase," he said.

Andi also said that Jamsostek would not make direct investment
in the near future as such investment in the past was steeped in
corruption, nepotism and collusion.

"We'll stop direct investment because its a source of
corruption and nepotism," he said, and as an example cited the
company's investment in retailer PT Sarinah which turned sour.

Separately, Jamsostek president Djunaidi was quoted by Bisnis
Indonesia daily as saying that he would file suit against PT
Ramako Gerbangmas and Abdul Latif next month if the two failed to
settle their debts with Jamsostek.

"If Ramako and Latif fail to pay by the end of this month,
we'll settle it in court," he told legislators during a hearing.

Ramako is a license holder of fast-food chain McDonald's
Indonesia, while Latif is a former minister who owns the Sarinah
Pasar Raya department store.