Bond Stabilisation Fund (BSF) in Indonesia: Lessons Learned and Its Precautionary Measures

We conduct a qualitative literature review on Indonesia’s proposed Bond Stabilisation Fund (BSF), synthesising international evidence to assess its viability and risks. The BSF is intended as a liquidity backstop to protect government bond markets from volatility. Our review draws on academic studies and policy reports (2020–2026) to identify theoretical rationales, practical design issues, and historical precedents. We find that while BSFs can reduce short-term yield spikes, they carry significant risks of market distortion and moral hazard. For example, interventions may undercut price signals and encourage excessive borrowing. Crucially, the effectiveness of a BSF depends on precautionary design: activation triggers tied to acute crises, punitive pricing to discourage casual use, strict eligibility (e.g. viability tests, no payouts) and clear exit strategies. Case studies (Thailand’s unused BSF, Korea’s reactivated fund) illustrate that overly restrictive conditions can render a BSF ineffective, whereas too lax policies invite abuse. Our key recommendation is that Indonesia should treat the BSF as a true last-resort tool: it should be well-capitalised but only deployed under severe market stress, with legislative guardrails to limit size and duration. Under these guidelines, a BSF can enhance debt-market stability without creating permanent fiscal risks or encouraging irresponsibility.