Government keeps eye on Euro woes, sees no real threat

The government will keep a close eye on Euro zone debt worries, which may send jitters to stocks and bonds as well as the local currency, the Finance Ministry said.

But there is no real threat to Indonesia’s economy with its strong fundamentals, Finance Minister Sri Mulyani Indrawati said Tuesday.

Global stocks fell amid concerns that the governments of Portugal, Italy, Ireland, Greece and Spain will struggle to fund budget deficits, Bloomberg reported.

“Now we see many countries, particularly in Western Europe, facing economic turmoil. This will affect the perception of a stable Euro. The impact to us will be seen from the exchange rates,” Mulyani said.

“There could also be an impact on the expectations of our bonds, where we may see yields and prices considered appropriate,” she added, but said the yield on the government’s five- and 10-year bonds had in fact improved.

On Tuesday, Asian stocks rose for the first time in four days on speculation European officials would help Greece tackle its budget deficit, Bloomberg reported.

The Jakarta Composite Index rose 0.56 percent to close at 2,489.48 on Tuesday.

Mulyani said Indonesia remained an attractive country for investors because of its strong fundamentals.

The economy is estimated to grow more than 4.3 percent in 2009, according to the Central Statistics Agency, which will announce the official growth figure at 11 a.m. on Wednesday. The government estimates the economy will expand 5.2 percent this year. The minister said capital inflow in the past three months was relatively stable.

“The size of our deficit is not too worrisome. If the size of bonds issued this year is compared to the market capacity we can absorb, I don’t see any worrying issues,” she said.

The government plans to sell Rp 175 trillion (US$18.73 billion) in bonds this year to plug the 2010 budget deficit of Rp 98 trillion.

Bank Danamon economist Helmi Arman said bond yields would be “lower going forward, compared to what they had been in the past”.

He predicted the yield on 10-year government bonds would decline to between 9.25 percent and 9.5 percent by the end of the first half of this year.

Helmi also said foreign ownership of government bonds showed a substantial increase, which indicated that “optimism on Indonesia’s fiscal outlook remains intact”.

In response to whether the government’s front-loading strategy in issuing bonds as early as possible may cause tight liquidity, Helmi said there were no serious concerns yet.

He said the schedule of maturing government bonds in 2010 was spread out throughout the year, meaning the significant share of bond purchases in the first half of this year would be “rollovers”.

Additionally, he added, bank lending had not grown as seen previously in 2008.