Economist warns of BSF risks, from moral hazard to market dependence

Jakarta (ANTARA) - Economist from the Center of Reform on Economics (CORE) Yusuf Rendy Manilet has reminded the government of several risks in the plan to reactivate the Bond Stabilisation Fund (BSF), ranging from moral hazard to market dependence. “I see the BSF as effective as a short-term stabilisation tool, but it cannot be made a permanent solution. The risks also need to be considered,” Yusuf said when contacted by ANTARA in Jakarta on Friday. On the moral hazard risk, Yusuf explained that investor expectations of the government’s constant presence to maintain bond prices could encourage more aggressive risk-taking behaviour. In such conditions, some market participants tend to enter when yields are high and exit when the market stabilises again, ultimately making the state a buffer for speculative behaviour. The second risk is price distortion. Yusuf warned that the bond market should function as a means of honestly reading risks through yield movements. However, if interventions are carried out too dominantly, bond prices may no longer fully reflect economic fundamentals. “In the short term, it may appear calm, but the market loses its price discovery function,” he said. Then, the third risk is fiscal pressure. He assessed that there is a paradox where the government might add to the fiscal burden to maintain debt market stability, so if the BSF is used aggressively, it could potentially increase pressure on the state budget (APBN). Furthermore, Yusuf also highlighted the risk of blurring the lines between fiscal and monetary policy. Although the BSF is in the fiscal realm, its impact resembles central bank market operations. “If the coordination is unclear, the market could start to perceive fiscal dominance over monetary policy, which could instead raise the risk premium,” he said. In addition, he considered there to be a risk of market dependence, where investors view government interventions as normal. In such conditions, when support is reduced, the market may react negatively, so an exit strategy needs to be designed from the outset. Previously, Finance Minister Purbaya Yudhi Sadewa planned to activate the BSF to keep the government debt securities market stable and not easily shaken by foreign investors. That step is also expected to prevent volatility in the domestic financial market and help maintain rupiah exchange rate stability. The funds are prepared to stabilise the government debt securities market by buying back (buyback) SBN in the secondary market released by investors. That strategy is carried out to keep SBN yields stable, so foreign investors holding government debt do not experience capital losses. Purbaya also mentioned that the BSF could involve funding sources from institutions under the Ministry of Finance, including special mission vehicles (SMV). “If it’s a real fund, the old design involves several institutions, including the Ministry of Finance and all SMVs under the Ministry of Finance, which can help when we stabilise bond prices. That’s the main thing. So, it’s not just SAL,” Purbaya said.