The government and the central bank have taken new steps aimed at bolstering market confidence, including allowing banks to set aside smaller reserves, extending a guarantee on deposits and allowing firms greater freedom to buy back shares.

Indonesia's stock market has been hit hard by waves of panic selling amid the global financial turbulence, forcing the suspension of trading since Wednesday, although the Indonesian Stock Exchange (IDX) will resume trading on Friday.

The index lost more than 20 percent of its value between Monday and midday Wednesday, prior to the suspension.

Finance Minister Sri Mulyani Indrawati said Thursday the new measures were needed to restore confidence and help ease worries that the country's financial sector could falter as it emulates a global trend.

Effective next month, the minimum reserve requirement (GWM) -- funds stored by banks in the central bank -- will be cut from 9.08 percent to 7.5 percent (of total deposits), a move expected to boost liquidity in the banking sector.

Sri Mulyani also said the government might ease the current bank deposit guarantee program, which only covers deposits of up to Rp 100 million. The ceiling could likely be raised, she said, "although we're still discussing the figure."

"It is expected to boost confidence in the banking sector."

On buybacks, the government is providing leeway for publicly listed state-owned companies to buy back their shares, particularly those companies with good fundamentals, as of Friday, said State Minister for State Enterprises Sofjan Djalil.

The companies will be allowed to buy back up to 20 percent of their stock from their paid-up capital, an increase from the 10 percent allowed under the existing regulation.

The companies will also be able to buy all traded shares in one-day trading, while previously they were limited to a maximum of 25 percent of such shares. They will also be allowed to buy back the shares without prior shareholder approval, although they still need to make a public disclosure.

"State-owned companies must use their own money, not loans, if they want to buy their shares," Sofjan said.

The central bank will also let banks use alternatives other than the mark-to-market scheme for debt accounting, said Bank Indonesia senior deputy governor Miranda S. Goeltom.

The scheme refers to a method for calculating a security or portfolio based on the current movement of market value, rather than its book value.

Sri Mulyani said the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) and the IDX would protect Indonesia's stock market from speculators and launch an investigation into this week's free fall.

"Bourse authorities say there are parties attempting to reap profits, seeing rumors over Bakrie Group's default, margin call, short sell. These do not represent the fundamentals of the listed companies," she said.

"The National Police, the Attorney General's Office and the Corruption Eradication Commission (KPK) will take legal measures if crimes were committed," she said.

Among the new measures

1. Cutting banks' minimum reserve requirement

2. Allowing alternatives to mark-to-market debt accounting scheme

3. Encouraging state companies to buy back shares

4. Extending a guarantee on bank deposits

5. Investigating suspicious speculations

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