T

he growth of US dollar-denominated private sector debts has fallen for two consecutive months, the latest statistics from Bank Indonesia (BI) have shown, signaling that the tighter dollar loans recently implemented by the central bank have begun to take effect.

BI statistics released Wednesday showed that private sector external debts grew 13.6 percent year-on-year (yoy) in January to hit US$162.9 billion, lower growth than 14.2 percent in December, 14.7 percent in November and 15.4 percent in October.

Private sector debts account for more than half of Indonesia'€™s total external debt position of $298.6 billion, with the rest being public debts that come in the form of government bonds and state loans.

'€œThe PBI [Bank Indonesia regulation] on private sector debt has begun to take effect, as businesses are now becoming more careful, calculating their liabilities before borrowing funds,'€ BI spokesperson Peter Jacobs said on Thursday.

In Oct. 30 last year, BI Governor Agus Martowardojo convened around 100 CEOs of local companies in his office as he introduced the new PBI regulating the country'€™s foreign debts, at the same time ordering them to be more prudent in borrowing new dollar loans.

The rules include the requirement for local companies, beginning January, to hedge at least 20 percent of their short-term dollar debts and to have a liquidity ratio of 50 percent if they want to borrow dollars.

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 growth in Indonesia'€™s external debts in January, though having remained in healthy shape, might warrant '€œcautiousness'€, the central bank said in a statement.

In the aftermath of the 2008 global financial crisis, local firms in emerging markets tapped the US market for financing, as the near-zero interest rate in the US has made borrowing in dollars cheaper than loans dominated in their local currencies.

In Indonesia, the private sector'€™s dollar-denominated debts stood at $83.7 billion in 2010, meaning that the figure has doubled in only five years to hit $162.9 billion in January this year.

Swelling private sector external debts has become a concern among economists, especially in the environment of unstable financial markets when a sharp depreciation of the rupiah might enlarge their payment obligations, even triggering a risk of default.

The rupiah has so far lost around 6 percent this year, the worst performing currency in Asia, as Indonesia'€™s sizeable current-account deficit made the country vulnerable to outflows.

'€œThe private sector should have better awareness of the need to hedge debts, given the volatile global financial market conditions,as the rupiah could strengthen or weaken at any given moment,'€ David Sumual, the chief economist of privately owned lender Bank Central Asia (BCA), said on Thursday.

However, the private sector has frequently complained about the high cost of using hedging services in Indonesia, given the volatile currency. Hedging costs increased to around 6.6 percent in February, from 5.6 percent in December, according to data compiled by state-run Mandiri Sekuritas.

Indonesia'€™s private sector external debt position was mainly concentrated in financial, manufacturing, mining, as well as electricity, gas and water supply industries, according to BI data. The debts in those sectors accounted for more than 70 percent of total private sector external debts in January.