VZCZCXRO4486
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1897/01 2870122
ZNR UUUUU ZZH
P 130122Z OCT 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 0303
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC 1535
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 2590
RUEHBJ/AMEMBASSY BEIJING 5478
RUEHBY/AMEMBASSY CANBERRA 3142
RUEHUL/AMEMBASSY SEOUL 4996
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001897 
 
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: GOI Attempts to Calm Markets, But Indonesia Stock Exchange 
Remains Closed 
 
REF: JAKARTA 1875 
 
¶1.  (SBU) SUMMARY:  Despite government efforts to calm markets by 
taking moves to increase liquidity and boost demand for stock 
shares, financial turmoil continues in Indonesia with fears about 
the impact of the real economy.  The government announced on October 
9 a series of actions aimed at calming markets with the stated 
intention of calming markets allowing for the reopening of the 
Indonesia Stock Exchange for trading on Friday, October 10.  The 
earlier sell-off on Wall Street and the waves of selling which hit 
regional exchanges prompted authorities to cancel first the morning 
session and then later the afternoon session, ending a week which 
saw the Jakarta Composite Exchange fall more than 21%.  Analysts 
have expressed concern that the closure of the exchange will leave a 
lasting, negative sentiment for investors, which may contribute to 
further currency weakness.END SUMMARY. 
 
STOCK EXCHANGE CANCELS PLANNED RESUMPTION OF TRADING, 
DESPITE GOI EFFORTS TO CALM MARKETS 
- - - - - - - - - - - - - - - - - - 
 
¶2. (SBU) Finance Minister and Coordinating Minister of the Economy 
Sri Mulyani Indrawati returned to Indonesia from the Gulf to respond 
to the crisis, cancelling her planned participation in the IMF/World 
Bank meetings.  On October 9, she announced a series of steps to 
calm markets, including relaxing mark-to-market accounting, easing 
regulations on share buy-backs by listed companies, increasing 
liquidity by accelerating government spending, funding the purchase 
of shares of state firms with strong fundamentals, and enforcement 
of capital markets regulation against market manipulators.  Central 
Bank Senior Deputy Governor Miranda Goeltom announced a reduction in 
reserve requirements to 7.5%, to be implemented in a month, which 
will increase liquidity to the financial system.  Goeltom also 
announced the government is considering an increase in bank deposits 
guarantee. 
 
¶3.  (SBU) Despite these aggressive moves to calm markets and 
heighten investor confidence, the wave of selling which hit other 
markets prior to the planned re-opening of the Indonesia Stock 
Exchange convinced Exchange authorities, in consultation with 
government officials, to cancel the planned October 10 re-opening of 
the stock exchange.  The exchange remained closed all day on Friday. 
 It has been closed since late morning on Wednesday, October 8. 
 
BUSINESS COMMUNITY LEADERS SHARE CONCERNS 
- - - - - - - - - - - - - - - - - - - - - 
 
¶4. (SBU) Embassy spoke with both the chairman of the Indonesian 
Employers Association and the vice president of the Indonesian 
Chamber of Commerce and Industry (Kadin)for business community views 
of the current financial turmoil and the government's response. 
Both had the same basic message: the situation is difficult; 
everyone is doing what they can to eliminate the panic; but nobody 
knows the right answer.  Both said that the government is consulting 
with a wide range of people (business and labor both) as they try to 
develop their responses.  And both said that, in the longer term, 
there would be impacts on the real economy. 
 
¶5. (SBU) The Kadin official hinted at considerable debate from 
within the business community regarding the role the government is 
playing.  Some feel that the government's direct interventions in 
the market (specifically its role in suspending trading and changing 
stock buyback regulations) are legitimate - "if you're about to get 
killed you do everything you can to avoid it."  Many others believe 
that it would be better not to intervene at all and just let the 
market correct.  He said the panic involves not just foreign 
investors, but everyone, adding that in the current situation 
everyone is re-evaluating their risk vs. reward calculation.  He 
also suggested that President Yudhoyono was playing a very large 
 
JAKARTA 00001897  002 OF 002 
 
 
role in coordinating the government response, noting that he cannot 
afford to have his reputation damaged over his management of this 
situation.  Neither official expressed any fear/concerns over social 
stability. 
 
RUPIAH WEAKENS, BOND YIELDS RISE 
- - - - - - - - - - - - - - - - - 
 
¶6. (U) The rupiah by late afternoon had fallen another 0.3%, with an 
average rate of 9651/USD according to Bank Indonesia.  The currency 
fell further in late trading, with Bloomberg reporting a rate of 
9860/USD, a 1.13% loss.  Domestic bond prices also fell, with yield 
on the ten-year bond rising to 14.624%. 
 
RUMORS CONTINUE TO SWIRL OVER FATE OF BAKRIE FIRMS 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶7. (SBU) Uncertainty continues to surround the fate of the six 
Bakrie group firms, owned by the family of State Minister for 
People's Welfare Aburizal Bakrie, which had been suspended after 
suffering large declines (reftel). Press reports cite a host of 
potential buyers of shares of Bakrie mining flagship PT Bumi 
Resources, including possibly two state-owned enterprises.  A 
scheduled meeting between Bakrie firm representatives and stock 
exchange officials on October 10 was reported cancelled, due to the 
press of market conditions.  The meeting was meant to clarify 
questions about the status of the firms, which had been suspended 
from trading on October 7. 
 
HUME