Grounds for concern: A worker walks inside the grounds of Bank Indonesia in Jakarta. The central bank said that corporate debt equivalent to about 42 percent of the nation’s total foreign-exchange reserves will mature during 2009. Companies will have to repay US$22.6 billion of overseas debts this year, a BI deputy governor said Thursday. JP/Ricky Yudhistira

Indonesia’s corporate overseas debts maturing in 2009 may drain nearly half of foreign exchange reserves, opening up to risks from speculators.

Bank Indonesia (BI) revealed Thursday, around US$22.6 billion  worth of overseas debts, equal to almost 42 percent of the country’s existing foreign exchange reserves,  would mature by the end of this year.

BI deputy governor Hartadi A. Sarwono said $17.4 billion of the total was in short-term loans and $5.2 billion in bankers’ acceptances and trade credits.

As of March 13, BI foreign reserves stood at $53.9 billion, enough to finance 5.7 months of imports.

Hartadi, however, was quick to assure that the maturing debt amount was “still within safe limits according to World Bank criteria”.

This is because, he said, 31 percent of the $17.4 billion were debts to parent companies, meaning  “the companies may still get debt rollovers”.

To “roll over” a debt means to replace a debt due for payment with a new debt, instead of paying it off.

“Historical data shows debts to parent companies can be rolled over,” said Hartadi, a possible candidate to replace BI senior deputy governor Miranda Goeltom in June.

Hartadi also said 57 percent of the $17.4 billion was owned by foreign and joint-venture companies.

“These companies usually have secured financing.”

Currency analyst Farial Anwar said overseas debts were among the factors leading to the weakening of the rupiah against the dollar.

Farial said BI should guard against sharp rupiah devaluations.

“Such cases (sharp volatility) cause uncertainties. Businesses would have difficulties in designing business plans.”

The maturing of the large overseas debt may have been a key factor  motivating Finance Minister Sri Mulyani Indrawati to request overseas loans and swap facilities from Japan, Australia, China, South Korea, and the Asian Development Bank (ADB) as a second line of central bank defenses in case of attacks on the rupiah.

Mulyani also proposed to the recent G20 summit that the US and European banks  provide facilities so that overseas debt of emerging countries’ corporate sectors could access restructuring and roll-over facilities.

A weaker foreign exchange reserve may pose greater risks from speculators seeking to profit from the financial market by attacking the rupiah,  as happened in the 1998 Asian financial crisis, when Indonesia only had $20 billion in reserves.

Foreign exchange inflows to the country are forecast to be limited as exports will contract by

up to 28 percent this year. Foreign  investment could be in negative territory, and dollar financing from the global market harder to get due to liquidity constraints hitting financing firms.

The rupiah rose 0.6 percent to 11,895 per dollar at 4:16 p.m. in Jakarta, Bloomberg reported. Between Jan. 1 and March 13, the rupiah fell 1.4 percent to 11,980,  says BI.

“BI will always intervene in the market to safeguard rupiah volatility, but not the level,” said Hartadi.

Maturing overseas corporate debt breakdown

Total US$22.6b

1. $17.4b in short-term loans, including interest fees of $2b.

— 31% to parent companies.

— 57% to foreign and joint-venture companies.

2. $5.2b in trade financing in the form of bankers’ acceptance and trade credits.

Source: Bank Indonesia

Contingency and additional loan to boost reserve

World Bank    $2b

ADB               $1b

JBIC              $1.5b

Australia        $1b

IDB               $0.5b*

France           $0.5b*

*(Under negotiation)

Source: Bank Indonesia

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