Indonesia’s government made a rare plea on Wednesday to state-owned insurance firms and banks not to sell government bonds as authorities try to stabilise volatile markets in the face of foreign selling over euro zone worries.
Authorities also urged large state firms to coordinate before they buy US dollars, a step to protect Indonesia’s struggling rupiah currency which has fallen 4 percent against the dollar this month.
“State-owned insurance firms and banks have been urged not to sell government bonds when prices are volatile,” Bambang Brodjonegoro, head of fiscal policy at the Ministry of Finance, told reporters on Wednesday.
Three years after the collapse of Wall Street giant Lehman Bros sparked a stampede out of higher risk assets and sent emerging economies reliant on foreign funding into shock, such fears have resurfaced in recent days amid heavy emerging equity and bond losses accompanied by sharp currency weakness.
The latest wave of foreign-led selling has been especially punishing on emerging-market darlings Indonesia, South Korea and Russia.
Foreign investors sold 14.05 trillion rupiah ($1.58 billion) of Indonesian government bonds from September 16 to 26, reducing their ownership to 222.8 trillion rupiah, or 32 percent, of total outstanding bonds, the latest finance ministry data shows.
This compares to a record 251.23 trillion rupiah, or 35.7 percent, on September 9.
Indonesia’s capital market regulator has also advised state-owned firms not to panic and sell stocks following volatility in Jakarta’s benchmark stock index in recent days and heavy outflows of global capital.
Indonesia’s central bank has intervened repeatedly in the foreign exchange market to prop up the rupiah and buy government bonds in the secondary market. It had 124.64 trillion rupiah in foreign exchange reserves as of the end of August.
Brodjonegoro also said the ministry had asked state firms to prepare funds to buy bonds if needed, under a scheme he called a bond stabilisation fund, to shore up the market.
But despite those headwinds, economists remain broadly upbeat about the outlook for Indonesia, Southeast Asia’s biggest economy. The government expects economic growth of 6.5 percent this year, Foreign minister Marty Natalegawa said on Tuesday, among the strongest in the region.
Brodjonegoro said the finance ministry now expects an inflation rate next year of 5 percent as the global economy slows. That compares with the central bank’s forecast for annual inflation of 4.8-4.9 percent for 2011.
Headline inflation rose to 4.79 percent in August from 4.61 percent in July, while core inflation jumped to 5.15 percent in August from July’s 4.55 percent, data on September 5 showed.
Perry Warjiyo, the central bank’s director of monetary policy and research, told reporters on Tuesday that Bank Indonesia may cut its benchmark reference rate to stimulate growth amid uncertainties in the global economy.