More Gov't Debt

62.1 tln won in nat'l bonds to be issued this year to supplement gov't budget

The government is scheduled to issue 62.1 trillion won worth of bonds this year. The bonds break down to 50.6 trillion won in Korean treasury bonds(KTBs) and 11.5 trillion won of National Housing Bonds(NHBs), the Ministry of Finance and Economy said in a release recently.
Of the 50.6 trillion won in KTBs, 25.2 trillion won will be used to fund rollover of existing KTBs, while 25.4 trillion won will be used to finance new government projects.
The new government projects include the foreign exchange stabilization funds amounting to 16.1 trillion won, 8 trillion won in general account, 0.5 trillion won for rice income stabilization fund, 0.3 trillion won for the United States forces in Korea Institution Relocation Special Account Fund, 0.3 trillion won for Science and Technology Promotion Fund,0.2 trillion won for Others and miscellaneous purposes.
The bonds will have maturities of 3, 5,10, and 20 years as opposed to 25,40,25, 20 maturities for KTBs issued in 2006. Bidding dates for fixed-rate KTBs are Mondays of 1st, 2nd, 3rd and 4th week of each month while bidding date for inflation-linked KTBs Wednesday of the 3rd week of the issuing month.
The government will keep the monthly issuance evenly spread throughout the year to ensure transparency and predictability in the market.
In the meantime, of the 11.5 trillion won set aside for issuance of NHBs, 7.4 trillion won will go toward rolling over existing Housing Bonds; 4.1 trillion won will be used to meet new demands, such as for housing construction and housing funds.
NHBs are sold through a mandatory purchase mechanism in relation to specific economic activities such as acquisition of real estate business licenses and title of registration of real estate. They are classified into Types 1,2 and 3 according to issuance conditions and purposes. Currently, only Types 1 and 2 are issued.
In order to broaden and deepen the KTB market, the government plans to take the following policy initiatives this year.
Upgrading the KTB issuance system and securing a stable base for financing.
(1) The government will diversify the debt portfolio by issuing inflation-linked KTBs. This will facilitate financing fiscal deficit even during periods of inflation by providing a tool to hedge risk as well as maximize investors'reach.
(2) The Ministry of Finance and Economy will set up an administration division solely responsible for KTB to promote professional debt management by recruiting financial experts from the private sector. It is expected to study and review various government bonds related to institutions toward the development of the Treasury bond markets.
(3) The government will encourage healthy competition between Primary Dealers. This will be accompanied by improving the PD incentive system, for example by increasing the amount given to the Non-competitive Bids Option II for PDs, and abolishing the preliminary PD system.
Boosting demand for government bonds and improving transparency of the secondary market.
(1) The government will consider the introduction of "Wheel-Issued Market"for KTBs. The "Wheel-Issued Market"refers to a market where unissued securities are traded on the condition of future issuance.
(2) Through open forum discussions, the government will devise measures to introduce an Electronic Trading System for KTBs in order to improve the transparency of the secondary market.
Strengthening Dialogue Channels with Market
The government will host IRs at home and abroad. "Guide to KTBs"will be made available in Korean and English. It will also host regular government bond-related discussion meeting to gather market vies and opinions on current policy issues.
After extensive research and surveys as well as meetings with experts in various sectors, the Ministry of Finance and Economy has finalized its plan issuing inflation-linked Korean Treasury bonds(KTBs), which go into effect from 2007. nw