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Government’s guarantee boost Indonesian stocks


October 14, 2008

Government’s guarantee boost Indonesian stocks
Indonesia raised its guarantee on bank deposits to head off a run on lenders and eased central bank rules so as to provide more liquidity, joining a global effort to bolster confidence in the world financial system, reported Reuters.

The latest measures, announced by Finance Minister Sri Mulyani Indrawati, provided support for the stock market, which reopened on Monday morning after a three-day trading halt.

Many had feared Jakarta's stocks would plummet as they caught up with losses seen worldwide at the end of last week, but the benchmark composite index .JKSE clawed back up into positive territory by afternoon trade after opening more than 5 percent lower.

Indonesia was badly hit by the 1997-98 Asian financial crisis when thousands of people queued outside the country's troubled banks to withdraw their money, the economy collapsed, and riots broke out in major cities, forcing then-President Suharto to resign.

This time around, the crisis -- part of a far, far bigger global credit catastrophe -- has been handled more effectively.

President Susilo Bambang Yudhoyono, known by his initials SBY, his widely respected finance minister, the central bank, and stock exchange have all introduced measures to calm the markets in the past week, limiting the potential fall-out in the run-up to parliamentary and presidential elections next year.

"So far, there has been no impact of the U.S. crisis on local politics, but for SBY, he must avoid the impact of the crisis spreading to Indonesia, he must secure banks and the real sector," said Umar Juoro, chairman of Centre for Information and Development Studies.

But some investors are wary that Indonesia could see social unrest if the global crisis eventually leads to job losses against a backdrop of high food and energy prices, and as political tensions increase.

"We are looking at an election next year," said Jennifer Tay, Citibank's Head of Portfolio Counselling, Investments for Asia Pacific. "So I would say that the political risk from now until next year is actually going to build up for Indonesia, so I'm rather concerned on the political front."

And while the decision to halt trading in some stock markets has sparked criticism from investors who wanted to bail out, Tay said in Indonesia's case "closing the market...was something necessary because if you notice, Indonesia's stock market is actually quite shallow."

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