Govt restructures debts owed to central bank

The Jakarta Post ,  Jakarta   |  Wed, 06/14/2006 1:21 PM  |  Business

Urip Hudiono, The Jakarta Post, Jakarta

The government has wrapped up the restructuring of its legacy debts to the central bank arising out of the support extended to ailing banks during the 1997 Asian financial crisis.

It now plans to issue Rp 54.8 trillion (US$6 billion) in ""softer"" bonds to partly replace existing debts, whose interest rate levels have been causing problems for the state budget.

The new SU-007 series of non-tradable securities will replace accrued inflation-adjusted principal and interest from the remaining SU-002 and SU-004 bonds that are held by Bank Indonesia, Finance Minister Sri Mulyani Indrawati told a hearing Tuesday with the House of Representatives finance commission.

The central bank will still hold the SU-002 bonds at their initial Rp 20 trillion face value, as well as the SU-004 bonds, which are worth Rp 53.7 trillion.

The new bond issue has been agreed by the Finance Ministry and BI, but needs approval from the House.

Mulyani said she expected the new bonds to help reduce the current excessive financial burden on the budget as a result of their lower interest rate of 0.1 percent, as compared to the SU-002's 1 percent and SU-004's 3 percent. The SU-007 bonds will also extend the maturities of the previous bonds from 2018 to 2025.

""The total repayment costs on the restructured debts will be Rp 154 trillion, as compared to Rp 247.9 trillion if they were not restructured,"" she said. ""So, we can save about Rp 90 trillion -- some Rp 14 trillion alone this year.""

Between 1998 and 2001, the government sold six series of bonds -- SU-001 to SU-006 -- worth Rp 238.27 trillion to BI for the purpose of covering the cost of the Bank Indonesia Liquidity Support (BLBI) scheme for troubled banks, and for the deposit and foreign credit blanket guarantee program that was introduced following the 1997 Asian financial crisis, which devastated Indonesia's banking industry. This was besides the more than Rp 400 trillion in ""recapitalization bonds"" that BI then injected into the banks to help prevent them from collapsing.

The issuance of the SU-007 bond to restructure the SU-002 and SU-004 bonds follows a similar replacement in 2003 of the SU-001 and SU-003 bonds with the SRBI-01 bond worth Rp 144.5 trillion.

The government had hastily issued the bonds as it was at the time short of hard cash to cover the huge cost of the BLBI scheme and the recapitalization program.

Harsh criticism of the scheme has since emerged, however, with the repayment of the bonds being a major burden on taxpayers. Like foreign debt, the bond repayments soak up funds that could be otherwise used to improve the country's education and healthcare sectors.

Many of the major banks that received recapitalization funds have also been accused of relying on the interest from the bonds for their profits rather than lending to the real sector.

The now-dissolved Indonesian Bank Restructuring Agency, which was set up to, among other things, recover BLBI and recapitalization funds from recipient banks only managed to recover 30 percent of the funds, with the remainder now being dubbed ""the cost of crisis.

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