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Emerging debt-New Sri Lanka bonds off highs in volatile trade

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Financing fiscal deficit

The government will finance its fiscal deficit estimated at Rp 75 trillion (US$8 billion) in fiscal 2008 mostly with rupiah bonds because its official capital accounts will end up with a net resource outflow of the equivalent of Rp 16.67 trillion.

The government plans to issue Rp 91.6 trillion worth of new bonds next year, up markedly from Rp 62.28 trillion, budgeted for this year.

This is a consequence of the government's decision to accelerate the amortization of its foreign debts, notably those with high interest rates, and to disband its foreign creditor consortium, the consultative group on Indonesia (CGI), starting this year.

But what happens to the ambitious program pronounced recently by Minister for State Enterprises Sofyan Djalil to privatize more than 20 state firms through initial public offerings or strategic sales next year?

The draft 2008 state budget currently under deliberations at the House of Representatives even reduces state revenues expected from privatization to Rp 1.5 trillion from Rp 2 trillion this year.

True, the global financial market is in a bearish mood now after the mini crash in the U.S sub-prime mortgage market (high-risk housing loans) but this market weakness, which is seen by most analysts as only a temporary phenomenon, should not have discouraged the government to bring more state companies to the capital market next year.

By relying more on the domestic and international debt market the government exposes itself to the risks of market volatility.

The costs of its borrowing will depend on its credit rating and the level of its sovereign risks as perceived by investors and creditors.

The government could reduce the costs of its debts if its credit rating is fairly high or its sovereign risks are low.

The government could improve its credit rating if its fiscal policies are perceived by the market as credibly good, its political stability getting stronger, the macroeconomic and monetary condition becomes healthier and the economic outlook is fairly bright.

On this score, the government's record is not so bad.

Our national stability has been strengthening amid the smoother democratization process.

The government's debt ratio against gross domestic product will decline from around 40 percent this year to 33 percent next year and the economy is estimated to expand by a robust 6.8 percent, up significantly from 6.3 percent this year, and inflation pressures continue declining.

But there are downside risks to all these estimates, including the contagion from bearish sentiment on the global financial market to what has been occurring over the past three weeks.

In a high degree of transparency that should be welcomed by the market, President Susilo Bambang Yudhoyono elaborated in his state address last week the major factors that could affect the assumptions used for projections on such key economic indicators as inflation, rupiah exchange rate, interests rate, international oil prices and economic growth.

These main indicators in turn strongly influence the government credit rating or reflect the government's sovereign risks.

The government must realize the market is much harsher with its punishment for policy mistakes but also quite quick with rewards for good performance, unlike sovereign creditors which sometime factor Indonesia's geopolitical position and bilateral interests into their loan considerations.

Over the past month, for example, foreign investors dumped the equivalent of billions of dollars worth of government rupiah bonds and Bank Indonesia commercial papers because of the impact of the crash of the American subprime mortgage market. Monetary policy effectiveness also is influenced by the maturity of public debt and its composition.

The increasing dependence on the debt market also requires better coordination of fiscal and monetary management because a change in short-term interest rates affects the economy through a number of different mechanisms which vary in their effects at different times.

Consumers tend to spend more when interest rates are lower because lower rates encourage more borrowing for big-ticket items as housing and cars. Lower rates also bring a fall in yields across the spectrum, which means higher bond and stock prices.

On the other hand, the credibility of fiscal policy has a large influence on the conduct and effectiveness of monetary policy because monetary measures could be more effective when businesses believe the government will not resort to excessive inflationary deficit financing.

The Jakartapost Editorial

Sovereign Wealth Funds - a Potential Tool of Asymmetric Warfare :D

Edited by kurukaalapoovan

மொனறட்டரி பொலிசியோ, பிஸ்கால் பொலிசியோ என்ன கருமமாயும் இருக்கட்டும்...

ஆனால் நான் அறிந்ததில் இப்ப சிறீ லங்காவில்...

ஒரு ராத்தல் பாண் முப்பது ரூவாவாம்!

ஒரு வடை பத்து ரூவாவாம்!

ஒரு பால் தேத்தணி முப்பது ரூவாவாம்!

ஒரு தேங்காய் இருபத்து அஞ்சு ரூவாவாம்!

ஒரு 400 கிராம் லக்ஸ்பிறே பக்கட் முன்னூறு ரூவாவாம்!

சிறீ லங்கா இக்கமனி ஒட்டபாயா, இராசபக்ஷவிண்ட கோணல் மனம் மாதிரி நன்னாத்தான் போகிது!! :D

  • 1 month later...
  • தொடங்கியவர்

Emerging debt-New Sri Lanka bonds off highs in volatile trade

HONG KONG, Oct 18 - Sri Lanka's maiden international bond rose on Thursday after the $500 million issue was subscribed more than three times, but profit-taking erased gains by the afternoon in an overall steady Asian debt market.

The cost of insuring Indonesian sovereign debt fell after Moody's Investor's Service upgraded its rating to Ba3 from B1, praising its fiscal prudence, improving external position and structural reforms. [iD:nHKG334312]

"Initially, we saw the bond trade higher on short covering after the issue was oversubscribed," said a Hong Kong-based trader. However, investors trading the bond intraday brought prices down.

Sri Lanka's debut international bond priced at par to yield 8.25 percent. The five-year offer rose to a high of 100.75 cents to a dollar before trading at 99.875/100. It traded as low as 99.50 at one point.

Most of the bonds were sold to U.S. investors who accounted for 40 percent of the allocations. Asia accounted for 30 percent and Europe, Middle East and Africa another 30 percent.

By investor type, asset managers took 53 percent, banks 25 percent, funds 10 percent, insurance companies and pension funds 7 percent and retail and private banking 5 percent of the deal.

Indonesian 5-year credit default swaps -- insurance like contracts that protect against defaults and restructuring -- moved in by 3-4 basis points to 118/121 bps after the widely expected Moody's move.

"Indonesia has embarked on a rating upgrade trajectory because the country's fundamentals have been improving significantly," said Sebastien Barbe, economist at Calyon Corporate & Investment Bank.

"The country has been lagging other Asian economies in terms of rating recoveries," he said.

Meanwhile, the broad market was flat, with investors focused on the growing number of borrowers lining up to sell bonds as investor appetite improves.

...

http://sg.news.yahoo.com/rtrs/20071018/tbs...ds-7318940.html

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