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Private debt could default
Concerns of a loan default by Indonesiaâs private sector are growing among economists following another rise in the sectorâs foreign debt for the second time this year
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Concerns of a loan default by Indonesia's private sector are growing among economists following another rise in the sector's foreign debt for the second time this year.
A default by the private sector could risk the stability of the country's entire financial system.
Bank Indonesia's (BI) latest external debt statistics, published on Tuesday, reveal that the private sector's foreign debt was up 12.9 percent year-on-year to US$145.63 billion in April.
The April growth was higher than the 12.2 percent and 11.6 percent in March and February, respectively.
BI spokesperson Tirta Segara said BI would issue a regulation on the private sector's foreign loans although it maintained its belief that the latest external debt figures were in a 'healthy' position.
According to Tirta, the central bank has the right to rule on the firms' external debt and it was currently carrying out an assessment of it.
'Even if the firm is not a banking institution, its financial woes may affect the stability of the financial system, which is under our jurisdiction,' he said.
The statistics show that non-bank firms dominate private sector borrowers, with more than 82 percent of the debt. Meanwhile in terms of types, joint venture and private national companies are the two largest borrowers with $42.76 billion and $38.05 billion, respectively.
Tirta said the rise in the private sector's foreign debt was mainly driven by manufacturers and miners.
'The manufacturing sector climbed 14.2 percent year-on-year and the mining sector 15.2 percent,' he said.
No information was immediately available regarding the use of the loans. However, the majority of them have a maturity period of more than one year.
Even though the public sector posted a lower yearly growth rate of 2.2 percent in April, compared to the 5.1 percent posted in March, it could not put the brakes on the country's rising debt-to-service ratio (DSR).
The DSR is commonly used to determine a borrower's ability to repay the debt.
It has kept climbing since 2012, surpassing the safe benchmark set by economists.
The DSR stood at 46.3 percent in the first quarter, much higher than the 36.8 percent reported during the same period in 2013.
Bank Mandiri chief economist Destry Damayanti said the DSR should be set at between 25 and 30 percent to prevent defaults.
She called on the central bank and government to set a cap on the amount of foreign loans that a private firm could obtain.
'Non-listed private firms are not required to report their loans portfolio. So we have no way of knowing whether they are actually capable of repaying their debts. This is risky,' she said.
Likewise, Juniman, chief economist of Bank Internasional Indonesia (BII), said the government and BI could set two layers of warning levels.
'Say for example, the first warning is given if the foreign debt has exceeded 30 percent of the equity and the second warning is given when the debt has gone beyond 60 percent,' he said.
