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RI 'capable of weathering forex storm'
Since the issuance of several protective regulations over the past few years, Indonesia is now in a better position to cope with the impact on the countryâs offshore loans of the rupiahâs depreciation, the central bank says
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Since the issuance of several protective regulations over the past few years, Indonesia is now in a better position to cope with the impact on the country's offshore loans of the rupiah's depreciation, the central bank says.
Bank Indonesia (BI) Governor Agus Martowardojo said in Jakarta on Wednesday that the impact of the fall in the rupiah against the US dollar on the repayment of the country's offshore loans would be minimized by the regulation on foreign loans issued last year.
'Already 70 percent of 1,400 companies with exposure to foreign exchange [forex] trading and offshore borrowings have complied with the regulation,' he said after giving a presentation on the rupiah to students of Pangudi Luhur junior high school.
He said the regulation had reduced the companies' exposure to the impact of a weaker rupiah.
The regulation requires companies to hedge at least 20 percent of their short-term US dollar debts and to have a liquidity ratio of 50 percent this year as part of their prudent business practices.
BI claimed that the move was crucial to reduce risk and maintain financial stability at times, such as these, of serious currency volatility.
The rupiah continued its losing streak on Wednesday slipping to 14,133 per US dollar, a 0.6 percent decline from the previous day.
The currency has already depreciated by 14 percent since the beginning of the year, according to data from Bloomberg, making it one of the worst performers in Asia.
The latest rupiah level is the lowest since the 1998 financial crisis. The collapse in the currency has raised growing concerns over the ability of local companies to service their offshore debts and obtain import financing.
Almost 72 percent of total offshore borrowings are in US dollars, according to the June external debt statistics published by BI.
According to the statistics, external debts in Indonesia amounted to US$304.29 billion by the end of June, a 6.3 percent increase from the same period last year. The government and central bank accounted for 44.2 percent of that figure, while the remaining 55.8 percent belonged to the private sector.
Non-banking private firms ' the target of BI's regulation ' accounted for $137.91 billion of the total external debts and this amount had risen by 8.9 percent within a one-year
period.
Agus said that despite the fall in the rupiah and the foreign capital outflows that had hit the local stock market over the past few days the central bank's forex reserves had not been seriously affected.
He said the current forex reserves, which amounted to $107.6 billion, were sufficient to finance imports for just less than seven months and to cover the repayment of the government's offshore loans.
'In addition to the forex reserves, we still have several swap deals that we can use for liquidity support,' he said, citing deals with China and Japan as examples.
At present, BI has a $15 billion bilateral currency swap arrangement (BCSA) with China and a $22.76 billion bilateral swap arrangement (BSA) with Japan.
Agus said the central bank could also access additional funding through the Chiang Mai Initiative Multilateralization scheme ' involving ASEAN members, China, Japan and South Korea ' and through the World Bank's deferred drawdown option.
Meanwhile, according to Robert Pakpahan, the director general of the Finance Ministry's financing and risk management office (DJPPR), around 31 percent of the government's loans are US-dollar denominated.
'We naturally hedge our dollar loans because we have income in dollars as well from the oil and gas sector,' he said, adding that the portion was manageable despite the weakening rupiah.
Separately, Gadjah Mada University economist Denni Puspa Purbasari said the forex reserve figure might appear small compared to the total external debt.
'But we need to keep in mind that many companies have their own forex reserves offshore and they may use them to simply repay the loans. They may not necessarily use the funds kept onshore,' she said.
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