VZCZCXRO1748
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1875/01 2822208
ZNR UUUUU ZZH
R 082208Z OCT 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0281
INFO RUCPDOC/USDOC WASHDC 1533
RUEATRS/DEPT OF TREASURY WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 2580
RUEHBJ/AMEMBASSY BEIJING 5468
RUEHBY/AMEMBASSY CANBERRA 3131
RUEHUL/AMEMBASSY SEOUL 4987
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001875 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EAP/MTS, EAP/EP, EEB/IFD/OMA 
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: Indonesia Stock Exchange Suspends Trading 
 
¶1.  (SBU) SUMMARY:  On October 8, the Indonesia Stock Exchange 
Jakarta halted trading after the Jakarta Composite Index plunged 
10.38%.  The rupiah, which had strengthened in early trading 
following Bank Indonesia's October 7 rate hike, closed weaker, down 
0.3% to 9593/USD.  Domestic bond prices continued to reflect 
significant volatility.  In response to continued market volatility, 
the Ministry of Finance issued an announcement that the government 
of Indonesia had decided to cancel the government bond auction 
scheduled for October 14 and the remaining scheduled government bond 
auctions through the end of 2008, as the government sought to create 
a more stable and conducive market situation.  END SUMMARY. 
 
STOCK EXCHANGE HALTS TRADING, AFTER FALLING MORE THAN 10% 
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¶2. (SBU) The Indonesia Stock Exchange halted trading at 11:06 a.m. 
local time following a 10.38% drop (on top of the nearly 12% drop 
from the previous two days).  The action was taken by Exchange 
management after consultations with Fuad Rahmany, Chairman of the 
Capital Market and Financial Institutions Supervisory Agency 
(Bapepam-LK) and with brokers.  Rahmany advised press that the 
action to suspend trading was justified, given the Jakarta Composite 
Index's drop of more than 20% in three days.  Embassy contacts at 
Bapepam confirmed that the halt in trading was a discretionary 
decision of the exchange after consultations with Bapepam, rather 
than triggered by automatic circuit breakers.  Indonesia Stock 
Exchange regulations (no. Kep-565/BEJ/11-2003) permit Exchange Board 
of Directors to approve halting trading if the main index decreases 
by at least 10% from the previous day's close. 
Embassy understands Exchange officials are meeting with market 
participants this evening to determine whether to extend the 
suspension to October 9. 
 
¶3. (U) Indonesian firms which experienced significant drops included 
PT Astra International, Indonesia's largest auto retailer, which 
tumbled 20%, and PT Indosat, the nation's second-biggest telephone 
company, which fell 23%.  Both fell on concerns slower global growth 
will erode domestic consumption.  PT Adaro Energy, Indonesia's 
second-largest coal producer, fell 19%. 
 
¶4. (U) On October 7, the Indonesia Stock Exchange suspended trading 
in shares of six Bakrie group firms following large declines of 
between 25% and 40% on October 6.  The firms, owned by the family of 
State Minister for People's Welfare Aburizal Bakrie, represent about 
6% of the Indonesian Stock Exchange in terms of market 
capitalization.  The reportedly highly-leveraged firms, including 
Bumi Resources (coal) and Bakrie Sumatra (palm oil), have been hit 
hard by falling commodity prices.  On October 8, a PT Bakrie & Bros. 
spokesperson denied rumors that there had been forced sales of 
shares of its subsidiaries pledged as collateral, blaming the drop 
on global illiquidity and market irrationality.  According to press 
reports, the president director of the Indonesia Stock Exchange said 
trading in the shares had been suspended "because there is too much 
unclear information about them circulating in the market and we need 
to clarify it with them."  We have not yet been unable to obtain 
additional details regarding the legal basis of the suspension of 
trading in these shares. 
 
FINANCE MINISTRY CANCELS BOND AUCTIONS 
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¶5. (SBU) The Ministry of Finance announced the cancellation of 
further government bond auctions in 2008.  In a press statement, the 
Ministry advised that the government would optimize government 
expenditures to reduce the budget deficit so that it would not need 
to access the bond market.  The government noted it could open bond 
auctions again if that market stabilized.  IMF resident 
representative Milan Zavadjil confirmed that the government intends 
to reduce the 2008 budget deficit to no more than 1.3%.  If budget 
realization reaches 95%, Zavadjil believes the government will be 
 
JAKARTA 00001875  002 OF 002 
 
 
able to cover the deficit without further borrowing, given huge 
revenue over-performance in 2008 to date. 
 
¶6. (SBU) A resident technical assistance advisor at the Ministry of 
Finance told us that the Ministry of Finance will postpone the 
global sukuk planned for late October/early November.  The Finance 
Minister is currently in the Gulf meeting with potential buyers of 
the sukuk.  Feedback from the "buy side" will certainly influence 
any decision regarding re-scheduling this issuance, which the 
advisor said could easily happen within a week of such a decision. 
Resrep Zavadjil also noted that the GOI may try to go directly to 
sovereign wealth funds in order to seek financing, in addition to 
the interest they have expressed in attempting to source a greater 
share of financing - preferably on concessionary terms -- from 
bilateral or multilateral institutions. 
 
BANKING LIQUIDITY, DOLLAR FINANCING 
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¶7.  (SBU) Local banking contacts have told us that they are 
experiencing problems in obtaining dollar financing.  Resrep 
Zavadjil, however, advises that local currency liquidity appears 
adequate, though a number of banks which have aggressively extended 
credit may face individual challenges. 
 
HUME