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Oil-rich regions will be able to choose from a variety of
bonds that the central government will offer them in exchange for up to
Rp 13.9 trillion (US$1.5 billion) out of the windfall revenues that
accrue to them as their share of national oil and gas revenue next year.
The "cash-for-bonds" deal is part of the central government's efforts
to mitigate the consequences of a worst-case scenario under which oil
prices average $100 a barrel throughout the whole of next year, which
could push up budgetary spending by Rp 54.7 trillion.
This figure includes more payouts from national oil and gas revenues to
the producing regions -- like Riau and East Kalimantan -- apart
altogether from additional subsidy spending on oil-based fuels.
"We will offer the bonds according to each region's specific cash-flow
needs," the Finance Ministry's director general for debt management,
Rahmat Waluyanto, said Wednesday.
"They could be short-term bills or long-term bonds, tradeable or
non-tradeable ones."
The ministry might particularly suggest that the regions take up bonds
from the secondary market, Rahmat said, should they prefer bonds, which
are more easily tradeable.
"The plan is that the regions will purchase the bonds through private
placements based on market-pricing mechanisms," he said.
On Tuesday, Finance Minister Sri Mulyani Indrawati said the government
had prepared a package of measures for next year aimed at saving up to
Rp 54.7 trillion to help it anticipate a worst-case scenario resulting
from high oil prices.
The bonds-for-cash program for oil-producing regions is one of those
measures.
On possible objections from the regions, Rahmat said that his officials
would work with the ministry's Regional Financial Balance Office to
inform the regions and negotiate with them.
"How much money will be exchanged for bonds will depend on the
negotiations, while still adhering to the usual revenue-sharing
formula," he said.
"Many regions let their funds sit idle, anyway, parking them in
short-term investment instruments, like central bank bills, before
putting to use."
Under the plan, the regions would still obtain such advantages as
capital gains based on the option of tradable bonds, and more
predictable interest earnings if they choose longer-term bonds.
The swap plan is expected to slightly increase the government's net
bond sales next year.
The government plans to raise Rp 91.6 trillion in net bond sales to
finance the 2008 budget, up from Rp 58.5 trillion under this year's
revised budget.
Under the worst-case scenario, oil-and-gas related revenue payouts to
the regions next year may come to Rp 41.2 trillion, compared to the
expected Rp 23.6 trillion.
Overall, while the government's action plan is almost enough to cover
the Rp 54.7 trillion in additional oil-related spending, the additional
revenues only come to Rp 52.8 trillion, pushing next year's deficit up
slightly to Rp 75.9 trillion, or 1.8 percent of GDP.
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