•    HOME   
•    NEWS   
•    BUSINESS   
•    INTERNATIONAL   
•    TECH   
•    SPORTS   
•    LIFE & TIMES   
•    OPINION   
•    MY JAKARTA   
•    BLOGS   
•    EYEWITNESS   

Bank Indonesia plans to buy long-term government bonds in the country’s secondary market in an effort to defend the ailing rupiah and stabilize the country’s debt market, the central bank’s governor, Darmin Nasution, said on Wednesday.

Indonesia’s financial market is shallow, meaning that there are not many instruments available for investors to invest in. Offshore investors account for the bulk of portfolio investment in the country’s high-yielding assets, which may pose major risks when market sentiment deteriorates.

“We will move to buy long-term bonds. We have bought short-term and medium-term rupiah bonds since September last year to support prices and improve market sentiment,” Darmin told reporters on the sidelines of a seminar in Jakarta.

“We cannot focus more on those short-term bonds” because the price of the notes has risen, Darmin said. Rising bond prices makes it less attractive for the central bank to buy the debt. Darmin did not say if the central bank would stop buying short-term papers.

He said the central bank’s recent bond purchases were intended to support prices and improve sentiment.

Indonesia’s foreign exchange reserves had fallen by more than $10 billion to $114.5 billion by the end of September from $124.6 billion in the previous month as global investors got spooked by the euro debt crisis and global slowdown. BI has used some of the reserves in its bond market intervention.

Indonesia’s foreign exchange reserves stood at $110.2 billion as of December.

BI held Rp 17 trillion ($1.85 billion) worth of tradable government bonds at the end of September, more than five times the Rp 3.12 trillion of bonds it held at the end of June, according to data from the debt management office at the Finance Ministry.

Darmin also said that BI wants to make those bonds monetary instruments to replace the short-term central bank bills, known as SBI bills. Monetary instruments at the country’s central bank include the benchmark interest rate, the reserve requirement and short and medium term bills.

Commenting on BI’s plan, the director general of debt management at the Ministry of Finance, Rahmat Waluyanto, said the idea of focusing on buying long-term bonds is “very good.”

“They’re accumulating government bonds for their monetary operations. We support BI’s plan as it will help develop the government bonds market,” Rahmat said.

Indonesia has been planning to phase out selling short-term bills by BI. Darmin also asked the country’s companies to sell bonds, aiming to provide more instruments in the financial market. “We do not have as many financial instruments as the Philippines,” Darmin said.

The government’s use of bonds to fund its budget deficit has become easier with the decision of Fitch Ratings last month and Moody’s on Wednesday to increase the country’s sovereign debt rating.

Additional reporting by Grace Dwitiya Amianti.