UPDATE 2-Indonesia to diversify debt issues, buy back bonds

(Adds more government plans to stabilise bond market)

By Muhamad Al Azhari

JAKARTA, April 3 (Reuters) - Indonesia plans to diversify its debt instruments this year as parts of an efforts to widen the investor base and to cope with the impact of volatile global financial markets, finance ministry officials said on Thursday.

The ministry said it plans to buy back government bonds maturing 2008-2013 on Friday. It will also bring forward plans to sell bonds to resource-rich regional governments in a bid to stabilise the market although did not give a timeframe.

Rahmat Waluyanto, the ministry's treasury director general, said the government planned to issue treasury bills regularly from April, 3-year variable rate treasury bonds also from April, sharia bonds in August and retail bonds in September.

The move comes after turmoil in domestic bond markets saw yields leap up partly due to expectations of rising domestic inflation and concerns about the economy.

"The government must be ready for diversification, we will issue a number of instruments with shorter maturities, because the rising trend of inflation will most likely cause yields for long-term debt paper to rise in a quite significant range," Waluyanto told reporters.

"The government must be realistic if there has been a re-pricing of risk," he said.

But Waluyanto added that long-term treasury bonds would still be regularly issued as the government remained confident demand would hold up, despite financial market turmoil, particularly from investors such as insurance firms or pension funds requiring long-term paper.