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BI imposes stricter ruling on dollar debts
Bank Indonesia (BI) announced on Thursday another foreign debt regulation involving a stricter reporting system for local companies planning to borrow US dollars amid the decline in the rupiah against the US dollar
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B
ank Indonesia (BI) announced on Thursday another foreign debt regulation involving a stricter reporting system for local companies planning to borrow US dollars amid the decline in the rupiah against the US dollar.
All Indonesian residents, banks and private companies must report any overseas borrowing transactions that involve a significant amount of foreign currency, according new central bank regulation PBI no 16/22, which took effect on Jan. 1.
'We understand the need for local businesses to get capital from overseas and the regulation is not intended to be an obstacle for them to access new loans,' said Hendy Sulistiowaty, the executive director of BI's statistics and monetary department.
She explained that the central bank wanted local firms to better manage their dollar-denominated debts, which posed a risk of default and currency mismatch against the backdrop of exchange rate fluctuations.
'We do not want a repeat of 1998, when we did not possess sufficient data on the amount and the management of debts in the private sector,' said Hendy, referring to the 1997-1998 Asian financial crisis, when many private companies in Indonesia went bust in response to the steep depreciation of the rupiah against the dollar.
The Indonesian currency has fallen sharply in the past several months amid worries that the planned increase in the US interest rate would trigger capital outflows from the country. The rupiah fell to 12,698 per US dollar on Dec. 16, the weakest in 16 years, raising the specter of the 1998 crisis. The rupiah slightly gained to 12,674 per dollar on Thursday from 12,739 on Wednesday.
Under the new rule, every local company with an at least US$100,000-net gap between its dollar liabilities and assets must file a report with BI regarding its offshore transactions and its foreign-debt management plan.
Every three months, companies will also need to file a compliance-based activities (KPPK) report to BI, detailing the latest status of the company's dollar asset and liabilities data.
The amount of private sector debt in the economy had already reached a 'worrying' level, warned Hendy. Indonesian private sector dollar-denominated debts topped $161.3 billion in October, or 54.8 percent of total external debts in the economy, latest BI data show.
The stricter reporting system will complement the central bank's last foreign-debt rule, announced by BI Governor Agus Martowardojo in October, when he invited around 100 CEOs of local companies to his Jakarta office.
The rule includes the requirement for companies to hedge at least 20 percent of their short-term dollar debts and to have a liquidity ratio of 50 percent beginning January 2015, if they want to borrow dollars.
The requirement will become stricter in 2016, when the hedging ratio will be increased to 25 percent, while the liquidity ratio will rise to 70 percent.
Beginning 2016, all companies wanting to borrow dollars must have a minimum rating of BB from international rating agencies, with the exemption of firms borrowing funds to finance infrastructure projects.
The hedging rule was intended to 'manage, not squeeze' the number of foreign debts, and thus it would have a limited impact on economic financing, Mandiri Sekuritas economists led by Aldian Taloputra wrote in a note.
'We believe that several sectors with limited access to forex [foreign exchange] assets, such as rupiah earners,and high forex leverage, will be impacted by the regulation in the short term,' argued Aldian, who predicted that the property, electricity and manufacturing sectors would be most impacted by BI's new regulation.
