U.S. bond issue won't be used to finance deficit
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono emphasized yesterday that proceeds of the government's bonds to be issued in the United States in August will not be used to finance the country's current account deficit.
"It is not the money we want to get but to set a benchmark for private offshore borrowings," he said at a lunch hosted by the Indonesia Netherlands Association (INA).
The central bank governor said that bonds issued overseas by Indonesian private companies are relatively very expensive, due to the absence of a benchmark or guidelines in setting up terms and conditions for the debt instruments.
He said that setting a benchmark will give a more favorable climate for the private sector in tapping funds from the international capital market.
"But it does not mean that we want to encourage the private sector to increase its offshore commercial loans as it will be against the government's prudential economic policy," he added.
Soedradjad said that the country's foreign loans, which at present total around $100 billion, of which 40 percent are owed by the private sector, still require close monitoring despite the government's intention to establish a more favorable climate for private offshore borrowings.
He said that the size of the government bonds has not been determined.
"The size is not the main concern of the bond issue, an early announcement of the bond volume could affect the market," he said. "It will not be so large...around several hundreds of millions of dollars."
"But for sure, it will not reach US$500 million," he said when pressed further.
Bank Indonesia, acting on behalf of the Indonesian government, has issued a number of bond instruments overseas -- in Germany, Japan, the Netherlands and Kuwait. The latest issue worth DM300 million was floated in Germany on 24 Oct. 1988, with maturity in 1994.
When asked why the government has waited until this year to issue the debt instruments if the main concern of the bond issue is only a matter of setting up the benchmark for the country's offshore commercial borrowings, Soedradjad replied that the climate in the international bond market is more favorable at present as compared to several years ago when international interest rates were high.
"In addition, we need time to prepare the issue by assigning rating agencies to assess the bonds and setting the right timing for the issuance," he said.
He stressed the planned issue of the bonds should not, therefore, be related to the country's current account deficit, which is expected to increase to $8.7 billion in the current fiscal year, from $6.9 billion last fiscal year.
Macroeconomic analyst and INA chairman Frans Seda said that the central bank's decision to float the bonds is an appropriate step in creating a more favorable climate to the private sector when raising long-term loans overseas, especially in the United States.
"I would say the timing is not that important," he said, when he was asked if the government's decision to float the bonds this year is timely.
According to Seda, a former finance minister, the timing and the size of the bonds to be issued by the central bank are not that important, given the fact that the money is not the main aim of the bond issuance.
"What makes it important is that the private sector will have a benchmark when floating debt instruments overseas," he said, adding that terms and conditions imposed on private companies' debt instruments are currently very costly because the absence of any gauge.(hen)