U.S. bond issue won't be used to finance deficit

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)