Cablegate: Indonesia Stock Exchange Suspends Trading

VZCZCXRO1748
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1875/01 2822208
ZNR UUUUU ZZH
R 082208Z OCT 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0281
INFO RUCPDOC/USDOC WASHDC 1533
RUEATRS/DEPT OF TREASURY WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 2580
RUEHBJ/AMEMBASSY BEIJING 5468
RUEHBY/AMEMBASSY CANBERRA 3131
RUEHUL/AMEMBASSY SEOUL 4987
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 001875

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/MTS, EAP/EP, EEB/IFD/OMA
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: Indonesia Stock Exchange Suspends Trading

1. (SBU) SUMMARY: On October 8, the Indonesia Stock Exchange
Jakarta halted trading after the Jakarta Composite Index plunged
10.38%. The rupiah, which had strengthened in early trading
following Bank Indonesia's October 7 rate hike, closed weaker, down
0.3% to 9593/USD. Domestic bond prices continued to reflect
significant volatility. In response to continued market volatility,
the Ministry of Finance issued an announcement that the government
of Indonesia had decided to cancel the government bond auction
scheduled for October 14 and the remaining scheduled government bond
auctions through the end of 2008, as the government sought to create
a more stable and conducive market situation. END SUMMARY.

STOCK EXCHANGE HALTS TRADING, AFTER FALLING MORE THAN 10%
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2. (SBU) The Indonesia Stock Exchange halted trading at 11:06 a.m.
local time following a 10.38% drop (on top of the nearly 12% drop
from the previous two days). The action was taken by Exchange
management after consultations with Fuad Rahmany, Chairman of the
Capital Market and Financial Institutions Supervisory Agency
(Bapepam-LK) and with brokers. Rahmany advised press that the
action to suspend trading was justified, given the Jakarta Composite
Index's drop of more than 20% in three days. Embassy contacts at
Bapepam confirmed that the halt in trading was a discretionary
decision of the exchange after consultations with Bapepam, rather
than triggered by automatic circuit breakers. Indonesia Stock
Exchange regulations (no. Kep-565/BEJ/11-2003) permit Exchange Board
of Directors to approve halting trading if the main index decreases
by at least 10% from the previous day's close.
Embassy understands Exchange officials are meeting with market
participants this evening to determine whether to extend the
suspension to October 9.

3. (U) Indonesian firms which experienced significant drops included
PT Astra International, Indonesia's largest auto retailer, which
tumbled 20%, and PT Indosat, the nation's second-biggest telephone
company, which fell 23%. Both fell on concerns slower global growth
will erode domestic consumption. PT Adaro Energy, Indonesia's
second-largest coal producer, fell 19%.

4. (U) On October 7, the Indonesia Stock Exchange suspended trading
in shares of six Bakrie group firms following large declines of
between 25% and 40% on October 6. The firms, owned by the family of
State Minister for People's Welfare Aburizal Bakrie, represent about
6% of the Indonesian Stock Exchange in terms of market
capitalization. The reportedly highly-leveraged firms, including
Bumi Resources (coal) and Bakrie Sumatra (palm oil), have been hit
hard by falling commodity prices. On October 8, a PT Bakrie & Bros.
spokesperson denied rumors that there had been forced sales of
shares of its subsidiaries pledged as collateral, blaming the drop
on global illiquidity and market irrationality. According to press
reports, the president director of the Indonesia Stock Exchange said
trading in the shares had been suspended "because there is too much
unclear information about them circulating in the market and we need
to clarify it with them." We have not yet been unable to obtain
additional details regarding the legal basis of the suspension of
trading in these shares.

FINANCE MINISTRY CANCELS BOND AUCTIONS
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5. (SBU) The Ministry of Finance announced the cancellation of
further government bond auctions in 2008. In a press statement, the
Ministry advised that the government would optimize government
expenditures to reduce the budget deficit so that it would not need
to access the bond market. The government noted it could open bond
auctions again if that market stabilized. IMF resident
representative Milan Zavadjil confirmed that the government intends
to reduce the 2008 budget deficit to no more than 1.3%. If budget
realization reaches 95%, Zavadjil believes the government will be

JAKARTA 00001875 002 OF 002

able to cover the deficit without further borrowing, given huge
revenue over-performance in 2008 to date.

6. (SBU) A resident technical assistance advisor at the Ministry of
Finance told us that the Ministry of Finance will postpone the
global sukuk planned for late October/early November. The Finance
Minister is currently in the Gulf meeting with potential buyers of
the sukuk. Feedback from the "buy side" will certainly influence
any decision regarding re-scheduling this issuance, which the
advisor said could easily happen within a week of such a decision.
Resrep Zavadjil also noted that the GOI may try to go directly to
sovereign wealth funds in order to seek financing, in addition to
the interest they have expressed in attempting to source a greater
share of financing - preferably on concessionary terms -- from
bilateral or multilateral institutions.

BANKING LIQUIDITY, DOLLAR FINANCING
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7. (SBU) Local banking contacts have told us that they are
experiencing problems in obtaining dollar financing. Resrep
Zavadjil, however, advises that local currency liquidity appears
adequate, though a number of banks which have aggressively extended
credit may face individual challenges.

HUME

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