Muhamad Al Azhari – Emerging-market countries such as Indonesia are struggling for increasingly scarce liquidity in global financial markets as they compete with the US Treasury's plans to issue $3 trillion in debt to fund the US budget deficit, Finance Minister Sri Mulyani Indrawati said on Tuesday.

The global collapse of liquidity has pressured emerging-markets paper, partly as international investors pull back assets they placed in emerging markets to cover their domestic positions. Emerging market countries like Indonesia face a dilemma, as on one hand they need to increase government spending to stimulate their economies via wider deficits, while crowding-out by first-world borrowers makes it difficult to finance the deficits.

"The whole world economy is going to suffer from larger deficits and fiscal spending," Sri Mulyani told the 5th World Islamic Economic Forum in Jakarta. But, she said, developing countries face giant competitors with giant liquidity needs, starting with the United States.

Indonesia plans to issue a net Rp 54.7 trillion ($4.54 billion) in bonds B – total bonds issued in a year minus maturing debt paper and bonds the government has planned to buy back – but domestic financial markets are under pressure as offshore investors have reduced their investment in high-yielding but high-risk Indonesian bonds.

"Even in an emerging country like Indonesia, with sound policy and a credible track record, we [still] have to fight to find the available capital left in the world," Sri Mulyani said.

However, despite the difficulties in financing, she said Indonesia still planned to widen its fiscal deficit as it was crucial to counter the impacts of the slowdown.

Indonesia plans a deficit of Rp 139.5 trillion, equivalent to 2.5 percent of gross domestic product and up from the earlier forecast of Rp 51.3 trillion, or 1 percent of GDP.

Separately, Indonesia on Tuesday bought back Rp 8.52 trillion worth of government rupiah bonds as part of an effort to stabilize the bond market, in which prices have been hit by negative global sentiment and a falling rupiah.