Fiscal Policy, Public Debt Management and Government Bond Markets in Indonesia

Over the past several years, the Indonesian government has pursued a prudent fiscal policy while still promoting economic growth. Since 2005, the government has shifted the source of deficit financing from external to domestic debt via the issuance of government securities. In doing so, it has sought to lengthen the maturity of local currency government bonds and to construct a yield curve. Meanwhile, the global excess of liquidity has driven foreign investors to seek for higher yields. With its strong fundamentals and attractive yields, Indonesia has therefore been the recipient of massive capital inflows, most of which have been invested in stock and government bonds. As the central bank, Bank Indonesia has adopted a mixture of monetary and macroprudential policy measures to manage these capital inflows and excess liquidity. From early 2008, the Bank has conducted daily operations with government securities to manage liquidity in the market.Full publication: "http://ssrn.com/abstract=2205164" Fiscal Policy, Public Debt and Monetary Policy in Emerging Market Economies