By Andi Abdusslam
Jakarta, March 3 (ANTARA) - The global bonds the government sold to foreign investors to help plug its budget deficit and increase its foreign exchange reserves might adversely entrap Indonesia and make it more difficult for the government to free itself from financial dependence on foreign countries, economic observers warn.
"This will make it even more difficult for Indonesia to end its financial dependence on foreign countries," economic observer Ichsanuddin Noorsy said here on Monday.
Indonesia last week sold US$3 billion in medium-term notes, the country's largest ever dollar-denominated bond sale to help plug its budget deficit of Rp139.5 trillion.
According to Finance Ministry spokesman Harry Z Soeratin, the global bonds were sold in two tranches. The first tranche covered US$1 billion worth five-year bonds, with a yield of 10.5 percent while the second one covered US$2 billion 10-year bonds with a yield of 11.75 percent.
Noorsy said the issuance of global bonds would create a burden on the country's state budget in the future because only a small portion of the state debentures were purchased by domestic investors.
The global bond bids, particularly for the five-year notes, were viewed to have attracted only a small portion of local investors.
About 55 percent of bonds in the five-year tranche was distributed in the Asian region, 18 percent in Europe and 27 percent in the United States, while of those offered in the 10-year tranche, some 30 percent were sold in Asia, 20 percent in Europe and 50 percent in the United States.
The notes triggered total orders of US$7.25 billion from 200 investors, which were 2.4 times bigger than the total auction proceeds.
After all the 10-year term notes carried a yield of 11.75 percent, which is bigger than that of the five-year term at 10.5 percent.
Economist Drajad H. Wibowo said the bond yields were to high, particularly if compared with those of the US Treasuries and of the Philippines.
The Philippines recently sold US$1.5 billion of 10-year notes with an 8.5 percent yield, which is 3.25 lower than Indonesia?s 10-year bonds.
According to Noorsy, the sale of state debentures to foreigners in the form of global bonds will make it more difficult for Indonesia to free itself from financial dependence on foreign countries.
Indonesia's decision to sell global bonds will lead it to bear worse consequences than the Philippines which had sold bonds at an interest rate of about seven percent.
Head of the Finance Ministry's fiscal policy Anggito Abimanyu said the government issued the global bonds in order, among others, to help cover the budget deficit of Rp139.5 trillion.
"Our trade surplus has declined while there has been a capital outflow from our investment portfolio. The source from where we can maintain our foreign exchange reserves is foreign debts," Abimanyu was quoted by the Jakarta Post as saying last week.
Rahmat Waluyanto, director general for debt management, said meanwhile said that the government decided to go on the sale of its global bonds to develop market confidence.
Besides, he said the government was also planning to issue Samurai bonds in June. Samurai bonds are yen-denominated bonds issued in Japan by foreign governments and companies.
Indonesia has raised funds through the issuance of bonds denominated in U.S. dollar since 2004, but never floated samurai bonds.
Japan reached an accord with Indonesia recently to provide US$1.5 billion in aid in the case the Southeast Asian economy issues samurai bonds to raise funds, and to double its bilateral swap scheme to US$12 billion to help the country better prepare for short-term liquidity problems amid the economic crisis, Kyodo reported.
Japanese Parliamentary Secretary for Finance Shinsuke Suematsu and Indonesian Finance Minister Sri Mulyani Indrawati sealed the deal during their talks in Phuket, Thailand, before a one-day gathering Sunday of finance ministers from the 10-member Association of Southeast Asian Nations.
"With a view to ensuring the stability of the economic and fiscal situation in Indonesia, ministers agreed to enhanced cooperation between Indonesia and Japan," a joint press statement by the two said. Those support steps for Indonesia are "precautionary measures" that would complement the country's foreign reserves, according to the paper.
Specifically, Tokyo will offer up to $1.5 billion to Jakarta in the form of a guarantee by the Japan Bank for International Cooperation to the Indonesian government, when it floats samurai bonds in the Japanese capital market.
Apart from the global bonds and samuarai bonds, the government is also considering issuing other types of bonds such as dollar-denominated sukuk (sharia-based bonds).
"For a while however, we will not issue global bonds anymore. But in our pipeline there are global sukuk, samurai bonds and other options," Waluyanto said.
Elfindri, an economic analyst of the Andalas state university, warned the government recently of the impact in the future of the global bond sale as it would not be effective when the value of the rupiah was relatively low.
"The government should not force to add global bonds because in the current crisis, debt payments could not be intensified," he said.***2*** (A014/A/H-NG/A014) (T.A014/A/A014/A/A014) 03-03-2009 18:19:17
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