Indonesia Dollar Bond Sale Disappoints
Indonesia's attempt to sell bonds to local investors fell flat Monday, stymieing the government's effort to reduce the volatility of its currency.</br></br>The Ministry of Finance had been looking to raise $450 million through its first-ever offering of bonds denominated in U.S. dollars to local investors. But weak demand for the bonds, with a coupon rate of 3.5%, meant the government was only able to raise $190 million--less than half its target.</br></br>The bond sale comes as investors around the globe are waiting for the U.S. Federal Reserve to start cutting back on its massive stimulus effort. Indonesian markets have been among the hardest hit by expectations the Fed will soon pull back on its $85-billion-a-month bond-buying program, a move that is expected to send U.S. interest rates higher and make emerging markets less attractive. Countries with both a fiscal deficit and current-account deficit, like Indonesia, rely heavily on foreign investment and can see their currencies plunge if investors flee.</br></br>The debt sale was part of an effort to stabilize Indonesia's currency, the rupiah, which has already fallen by more than 20% against the dollar this year. The sale of the bonds was designed to increase the pool of dollars in the country to help meet local demand for the U.S. currency. Having more dollars on hand can help lessen the currency shock when foreign investors depart.</br></br>Already, Bank Indonesia has raised its benchmark interest rate by a percentage point since late August, to 7.5%. Higher interest rates tend to draw overseas investors, and the move was widely seen as an effort to shield the economy from the turbulence that is expected when the Fed winds down its easy-money program.