Gov't mulls measures to bolster demand for bonds

SEOUL, March 11 (Yonhap) -- The government said Wednesday that it is considering
offering new treasury bonds in exchange for less liquid ones to boost demand for
government debt ahead of its planned large-scale additional budget.
The bond-exchange program, the first of its kind, is among the measures the
government is considering amid concerns that its envisioned extra budget will
require additional sale of bonds and increase supply in the domestic debt market,
according to the Ministry of Strategy and Finance.
"We are reviewing measures including the bond exchange program," a ministry
official said. "Details have yet to be determined and we will announce the
financial version of policies in time for proposal of an extra budget."
The government is currently crafting a supplementary budget spending plan many
expect will be around 30 trillion won (US$20.2 billion). The additional spending
plan is expected to be submitted to a Cabinet meeting earlier next week,
officials said.
The move comes as South Korea's economy is expected to contract in 2009 for the
first time in 11 years. Finance Minister Yoon Jeung-hyun has said that the
economy will shrink 2 percent this year and shed 200,000 jobs compared with a
year earlier.
On top of the nation's initial plan to issue treasuries totaling 74.3 trillion
won for this year, the supplementary budget will likely further increase the bond
supply in the domestic market, raising concerns that the move could result in
higher borrowing costs.
As part of efforts to bolster demand, the ministry said that it is also
considering increasing the ratio of more popular three-year and five-year
treasuries to up to 85 percent of the total debt sale this year. In 2007 and
2008, the short-term bonds accounted for 62 percent and 66 percent.
On Feb. 26, the ministry announced that it will provide tax cuts or exemption on
capital gains earned by foreigners in the domestic bond market as part of efforts
to induce a capital influx. It will submit a related bill to the upcoming April
parliament.
kokobj@yna.co.kr
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