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Suharto orders state companies to buy Indonesia shares

Dow Jones - November 21, 1997

Jakarta – Indonesia's President Suharto Friday ordered all state-owned companies to allocate 1% of their respective earnings to buy shares listed on the country's exchanges in order to support the slumping capital market, the state-owned Radio Republik Indonesia reported Friday evening.

Suharto declared the order from Cape Town, South Africa. He was in the country as part of his 12-day trip overseas including attending the Asia Pacific Economic Cooperation's summit in Vancouver, Canada.

RRI quoted the chairman of the Indonesian Chamber of Commerce, Aburizal Bakrie, as saying state-owned companies can buy shares directly or through mutual funds. Bakrie is accompanying Suharto on the trip.

Derailed by the currency turbulence storming the region, the Jakarta Stock Exchange Index has lost 47% after hitting an all time high of 740.883 points early July. The JSX index hit a four year low at 391.258 points Friday.

Bakrie also quoted Suharto as saying the government will channel the $5-billion aid pledged by Singapore bilaterally to the private sector in order to help the cash-strapped companies.

In order to defend the value of the rupiah, the government squeezed liquidity in August, which in turn boosted interest rates sharply. The move failed to defend the currency and hurt Indonesian companies instead.

Bakrie added the government will also soon inject some 20 trillion rupiah to the private sector. The fund will come from the state-owned companies' funds kept in Bank Indonesia.

The large liquidity injection is expected to bring down the lending rate from between 35% and 40% currently.