State banks agree to extend maturity of govt bonds
A'an Suryana, The Jakarta Post, Jakarta
State-owned banks have agreed to the government's proposal to extend the maturity period of government bonds they hold, Minister of Finance Boediono said on Wednesday.
Boediono said that this would help avert a fiscal disaster in the near future, and hoped that the House of Representatives could quickly endorse the agreement.
"The extension (of the maturity) is important because it could reduce the burden on the state budget," he told legislators during a meeting with House of Representatives Commission IX on state budget and finance.
The state-owned banks are Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN).
The government injected some Rp 430 trillion (US$48 billion) into troubled banks in the late 1990s to help them stay afloat. Some Rp 231.61 trillion-worth of bonds was injected into the state banks. The state budget covers the interest on the bonds.
A large chunk of the bonds would start maturing in 2004 and reach their peak in 2009. Without the rescheduling of the maturity profile, it would have been almost impossible for the cash-strapped government to repay the maturing bonds.
Around Rp 48.68 trillion of the bonds injected into the state- owned banks will mature in 2004. The amount will continue to increase until 2009.
Under the government's proposal, the maturity profile of the bonds would be extended to between 2010 and 2020 by exchanging some of the existing bonds with new ones.
But the government would have to pay a higher interest rate on the new bonds.
Boediono said that the additional burden on the state budget due to the cost of the higher interest would be around Rp 824 billion per year.
"This amount is not huge," Boediono said.
The finance minister did not provide further details of the agreement with the state-owned banks.
Bank Mandiri had earlier urged the government to quickly set the terms and conditions for its bond "reprofiling plan," saying that the new policy should be made clear before the giant bank launched its initial public offering (IPO), to create certainty for potential investors.
Analysts had earlier said that investors would demand a higher interest rate if the government moved to extend the maturity period of the bonds.
Bank Mandiri plans to sell up to a 30 percent stake via IPO later this year as part of the government's privatization program.
Meanwhile, economist Mohamad Ichsan said that extension of the maturity profile of the government bonds would merely transfer the debt burden into the next generation.
But he acknowledged that it was the only available measure the government could adopt to avoid a fiscal disaster.
"The privatization program has not shown encouraging results yet. Therefore, if the government fails to resolve the recap bond problem, Indonesia's fiscal sustainability will be under threat in coming years," Ichsan, economist with the University of Indonesia, told The Jakarta Post.
The privatization program was supposed to raise around Rp 6.5 trillion in cash this year, but so far the results have been disappointing.