VZCZCXRO7020
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1923/01 2900827
ZNR UUUUU ZZH
P 160827Z OCT 08 ZDK
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 0340
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC 1537
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 2607
RUEHBJ/AMEMBASSY BEIJING 5495
RUEHBY/AMEMBASSY CANBERRA 3163
RUEHUL/AMEMBASSY SEOUL 5012
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
UNCLAS SECTION 01 OF 03 JAKARTA 001923
SENSITIVE
SIPDIS
DEPARTMENT FOR EAP/MTS, EAP/EP, EEB/IFD/OMA, E
TREASURY FOR M.NUGENT AND T.RAND
COMMERCE FOR 4430 BERLINGUETTE/KELLY
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR CURRAN
DEPARTMENT PASS EXIM BANK
SINGAPORE FOR S. BAKER
TOKYO FOR MGREWE
USDA/FAS/OA YOST, MILLER, JACKSON
USDA/FAS/OCRA CRIKER, HIGGISTON, RADLER
USDA/FAS/OGA CHAUDRY, DWYER
USTR WEISEL, EHLERS
E.O. 12958: N/A
TAGS: EFIN ECON ETRD EINV ID
SUBJECT: GOI Takes Additional Steps to Bolster
Confidence in Financial Markets
Refs: (A) Jakarta 1897 (B) Jakarta 1875
1. (SBU) SUMMARY: The government of Indonesia has taken additional
important steps to increase liquidity and bolster confidence in its
financial markets. Actions included increasing by 20-fold the
amount of bank deposits subject to government guarantee, reducing
minimum reserve requirements on foreign currency deposits from 3% to
1%, and further facilitating the buy-back of shares by state-owned
enterprises. Markets recovered following the October 13 re-open of
the Indonesia Stock Exchange, before giving back gains later in the
week. The government continues to temper expectations about future
economic growth in the wake of the global financial turmoil and has
again revised the 2009 budget to reduce the budget deficit (to 1% of
GDP) and limit needed financing. World Bank officials in Jakarta
confirm GOI interest in a $2 billion stand-by loan, as the
government seeks to secure alternative sources of financing. END
SUMMARY.
STOCK MARKET RE-OPENS OCTOBER 13
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2. (U) The Indonesia Stock Exchange re-opened on Monday, October 13,
after halting trade from mid-day October 8 through October 10.
After falling by more than 6% at the open on October 13, the Jakarta
Composite Index recovered to close higher by 0.7% on heavy trading
volume. Markets staged a more dramatic rally on October 14, closing
up 6.4%, on lower trading volumes, before pulling back on October 15
(down 2.3%) and October 16 (down 3.8%). The rupiah strengthened
early in the week, recovering from 3-year lows reached in late
trading on October 10, but gave back ground on October 15, closing
at 9772/USD according to Bank Indonesia. (Note: The rupiah has
depreciated by 3.2% against the USD from September 16 to October
15.) Indonesian government bonds remain weak. Despite recovering
slightly on October 15 (with yields declining to 14.37%), prices for
the benchmark ten-year bond fell again on October 16, pushing yields
up to 15.27% mid-day.
3. (U) Embassy spoke with several local economists and analysts, who
generally agree that following the panic which struck the Indonesia
Stock Exchange on October 8, local investors re-entered the market
when it opened October 13, viewing current valuations as attractive.
Chatib Basri, an economist who also serves as an advisor to the
government, told Embassy that President Yudhoyono (SBY) had
ultimately recommended against re-opening the stock exchange on
Friday, October 10, when it became clear that there would be a large
demand for U.S. dollars, putting additional pressure on the rupiah.
Basri said concerns about the Bakrie group (reftels) had played no
role in the decision to close the stock market and that State
Minister Bakrie was playing no role in the government's response to
the financial crisis.
GOI AND BI TAKE ADDITIONAL MEASURES TO BOOST CONFIDENCE
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4. (SBU) Indonesian authorities have moved quickly to increase
liquidity and confidence in local financial markets. On October 13,
SBY issued a regulation in lieu of a law that allowed the Indonesia
Deposit Insurance Corporation to raise the deposit amount subject to
government guarantee from IDR 100 million (about $10,000) to IDR 2
billion (about $200,000), to maintain depositor confidence. The
new, higher limit reportedly will completely insure 97% of
depositors.
5. (U) On October 13, the Finance Ministry also announced the
issuance by SBY of a regulation in lieu of a law expanding the types
of bank assets that can be used to access Bank Indonesia's
short-term financing facility.
6. (U) On October 14, Bank Indonesia Governor Boediono announced the
JAKARTA 00001923 002 OF 003
following steps to ensure rupiah and foreign currency liquidity in
the domestic market:
-extension of the tenor of foreign exchange swap facility from a
maximum of 7 days to one month to satisfy the temporary demand for
U.S. dollars (effective October 15);
-supplying foreign currency for domestic firms through the banking
sector (no further details, effective October 15);
-reducing the minimum reserve requirements on foreign currency
deposits from 3% to 1% to add to the availability of USD liquidity
(effective October 13, this should inject about $700 million in USD
liquidity to the banking system);
-lifting a limitation on a minimum daily balance on short-term
foreign loans to reduce pressure for the purchase of USD (effective
October 13);
-simplifying the calculation of minimum reserve requirements on
rupiah deposits to have a maximum 7.5% statutory reserve requirement
(effective October 24).
STATE-OWNED ENTERPRISES BUYING BACK SHARES
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7. (U) On October 14, parliament approved a Ministry of Finance
proposal to use Rupiah 4 trillion (about $409 million) in state
budget funds to buy back shares in state-owned enterprises.
Separately, nine other state-owned enterprises have announced plans
to fund additional share buy-backs worth over $800 million using
their own funds. Stock exchange trading limits have limited the
amount of shares firms have been able to purchase on any given day.
Embassy understands the Stock Exchange may be increasing the upward
trading limit to facilitate more rapid buy-backs of shares.
Meanwhile, the Capital Market and Financial Institutions Supervisory
Agency (Bapepam-LK) and an inter-agency task force is also
investigating foreign and local securities firms regarding alleged
short-selling and other possible securities violations. Rumors have
been rife regarding the role of short selling and possible
rumor-mongering to drive down certain stocks.
LOWERING 2009 BUDGET DEFICIT, ADJUSTING EXPECTATIONS OF FUTURE
ECONOMIC GROWTH AND SEEKING ALTERNATIVE FINANCING
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8. (SBU) Recognizing the headwinds facing the Indonesian economy in
2009 as a result of an expected global slowdown, the government
submitted revised economic assumptions for the 2009 budget to
Parliament on October 13. The parliamentary budget committee and
government agreed to lower projected economic growth to 6.0%, from
the previous 6.3% forecast. In order to decrease financing costs in
the current unfavorable climate, the government and budget committee
have agreed to reduce further the 2009 budget deficit to 1.0% of
GDP, which may nearly halve previously announced 2009 financing
requirements.
9. (SBU) On October 15, World Bank officials in Jakarta confirmed
that the Indonesian government has requested World Bank assistance
in the form of a $2 billion stand-by loan, as the government seeks
alternative sources of future financing. Officials here describe
discussions as preliminary. The World Bank is apparently willing
and committed to being of assistance given the current global
financial crisis and Embassy understands there were some discussions
on the subject on the margins of the annual Bank/Fund meeting.
Local press reports quote Philippine President Arroyo as stating
that ASEAN plus three (China, Japan and Korea), the World Bank, IMF
and ADB are in the process of establishing a stand-by facility to
assist ASEAN countries affected by the global financial crisis.
JAKARTA 00001923 003 OF 003
Other reports quote World Bank officials, who stated the Bank had
not yet discussed plans to create such a regional facility.
BAKRIE FIRMS REMAIN SUSPENDED FROM TRADING
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10. (SBU) Speculation continues regarding the future of the six
Bakrie group firms, which remain suspended, as their owners seek to
conclude a sale of assets in a bid to raise $1.2 billion to pay
debts. The press reports that the firms were required to top up
collateral after the prices of shares pledged to secure the loans
had fallen. Bakrie group officials made a public presentation on
October 12 regarding plans to sell assets to repay outstanding
loans. The officials reportedly requested that trading in the
shares of the six firms remain suspended for the week of October 13
as the group attempts to complete negotiations of share sales. On
October 15, State Enterprises Minister Sofyan Djalil reportedly told
press that if state enterprises such as PT Tambang Batubara Bukit
Asam or PT Aneka Tambang wish to acquire shares in Bakrie's BUMI
coal unit and have funds available to fund the purchases, the
government would not object.
HEFFERN