T

he government has appointed at least 13 major state companies to join the bond stabilization fund established recently to insulate the local bond market in the event of a sudden large outflow of foreign funds.

Under the agreements signed in Jakarta on Tuesday, the state companies would act as standby buyers of the government bonds if there were a sudden reversal of foreign funds from the local debt market.

State-Owned Enterprises Ministry business services deputy Parikesit Suprapto said the agreements were signed as a follow-up of the memorandum of understanding signed by Finance Minister Agus Martowardojo and State-Owned Enterprises Minister Mustafa Abubakar in late December, last year.

“State banks, insurance firms and other state-run financial services firms will coordinate with state securities firms acting as arrangers in the stabilization program,” Parikesit told reporters after a coordination meeting at the Finance Ministry in Jakarta.

He said the 13 state companies would comprise four banks including Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI), Bank Tabungan Negara (BTN) and nine non-banks and insurance companies including Jaminan Kredit Indonesia (Jamkrindo) and Asuransi Kredit Indonesia (Askrindo).

Moody’s Investors Service, which just upgraded Indonesia’s credit rating to one notch below investment grade, said that the establishment of the “bond fund” had grounded the rating agency to give a “stable outlook” on the nation’s new Ba1 rating.

“The gradual pace of the deepening in the country’s capital markets and the recent proposal for the creation of a ‘bond-fund’ in the 12-18 month timeframe, could slowly begin to enhance the government’s onshore debt finance-ability,” said Aninda Mitra, Moody’s vice president and lead sovereign analyst for Indonesia.

Director general of the Finance Ministry’s debt management office, Rahmat Waluyanto, said that to stabilize bond yields or prices, the state firms could do buybacks or buy the debt papers.

“It’s a form of investment that creates potential capital gain for the firms.”

“State firms will be leaders because, in times of crisis, what matters most is leadership. Market players will wait for the government’s actions in times of crisis,” Rahmat added.

The World Bank and other international financial institutions have urged Indonesia’s policymakers to better manage incoming foreign funds as the large amount of foreign inflows could create a financial shock if there were a sudden reversal especially in a time of crisis.

Last year, foreign investors pumped a net US$13 billion into the country’s stock and debt markets. About $9.7 billion of that total, or 73 percent, went to government bonds, increasing the foreign ownership to about 30 percent.

Rahmat said that the stabilization fund would be activated only if there were a shock in the debt market such as a massive withdrawal of foreign funds.

If there were an indication of a sudden reversal, the Finance Ministry would alert the arrangers when it felt the need to coordinate in stabilizing bond prices, he said. The “bond fund” arrangers include state-owned securities firms, including Bahana Securities, Mandiri Sekuritas and Danareksa Sekuritas.

“The securities firms will then coordinate with the state firms involved in the scheme,” he said. (est)