Three weeks on, currency and bond markets appear to have given Indonesia a pass on its direct financing foray. Analysts say that’s because the central bank gave a clear signal that it was a one-time program and officials spearheading the plan, like Finance Minister Sri Mulyani Indrawati, are credible.
Bank Indonesia’s unprecedented move to buy about $27 billion in bonds directly from the government may prove to be an exception rather than the norm in emerging markets.
With the world economy in crisis and Modern Monetary Theory gaining attention, governments are being pressured to spend more and turn to their central banks to print money to foot the bill. But when it comes to scooping up that debt, most central banks are doing it in the secondary market.
