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 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶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