Indonesia has urged its regional banks to diversify investment holdings into government debt, a top official said on Monday, seeking to widen the investor base to help plug a higher budget deficit target this year. Mardiasmo, the finance ministry's director general in charge of overseeing budget funds for the regions worth $30 billion this year, said regional banks had built up their government bond holdings in six months to December from almost nothing to 10 trillion rupiah ($862 million).
A shift into government bonds from their traditional holdings of short-term central bank debt paper (SBIs) may help the central government secure bigger demand for its debt amid weak appetite from foreign investors wary about emerging market assets.
Mardiasmo, however, said central government would leave it up to the roughly 30 regional development banks controlled by provincial governments to decide on their investment strategies, saying it should be in line with management of their cash flow. "Yes, we have suggested to them to invest not just in SBIs but also government debt paper," Mardiasmo said in an interview.