Aditya Suharmoko and Ika Krismantari, Jakarta – The Finance Ministry is recalculating the state budget deficit's tolerance level, as the shortage in global liquidity and higher costs of protecting sovereign debts from default threaten to make fund-raising harder.
One option being explored to help sustain the state budget is an adjustment in the financing scheme to patch up the 2009 deficit, head of the ministry's fiscal policy Anggito Abimanyu said recently.
"We have already been able to secure some funds to plug this year's deficit. We think the impact (of the liquidity problem) will be for the 2009 budget. But we still have some time to come up with new measures," Anggito said.
"With the latest development (in the United States), our concern is whether our (government) bonds issued next year can be absorbed by the market. If they can be absorbed the costs will be very high for the government."
The government is planning to issue bonds worth Rp 94.7 trillion (US$10.3 billion) next year to refinance maturing bonds and help plug the budget deficit, which is estimated to reach 1.7 percent of GDP, or around Rp 83 trillion.
The government has been relying more on issuing bonds than on bilateral or multilateral loan programs, which often involve complicated requirements in favor of the donor countries or agencies.
It is considered important for developing countries such as Indonesia to keep the budget deficit in check for many reasons, including to ensure the government has sufficient funds in case of an emergency.
Anggito said the ministry might consider using money leftover from the 2008 state budget to help ease next year's deficit.
"We will go to the House of Representatives to present our 2009 financing strategy by taking the latest development into account. The strategy may also include using unspent funds from this year," he said. As of August, the government had more than Rp 110 trillion in idle funds stored in the central bank.
To plug this year's deficit, Anggito said the government would only need to issue Rp 16 trillion worth of Islamic bonds (sukuk) and short-term government bills. The ministry plans to issue sukuk in late October.
According to JPMorgan Chase, as reported by Bloomberg on Thursday, the cost of protecting Indonesian government bonds from default rose to a record 4.14 percentage points as investors demanded extra yield to own developing-nation bonds instead of US Treasuries.
Meanwhile, Indonesia Stock Exchange (IDX) president director Erry Firmansyah said the corporate sector would feel the pinch from the tight global liquidity and soaring costs of increased debt.
Erry said the IDX had revised down its estimate of corporate bond issues for this year from Rp 40 trillion to Rp 15 trillion. This means the market will see a 52 percent drop in bond issues this year from the Rp 31.27 trillion recorded last year.
"There have been no publicly listed companies filing a request to issue bonds so far, because the appetite for bonds has been bearish lately following the pickup in bond yields. Companies prefer to seek bank loans instead," Erry said.