Foreign exchange (FX) reserves finally increased in December, but economists say that they risk falling again in light of unpredictable market movement.

In a statement published on Friday, Bank Indonesia (BI) announced that FX reserves had climbed to US$105.9 billion in December from a previous position of $100.2 billion in November.

The figure is sufficient to finance 7.7 months of imports or 7.4 months of imports and repayment of the government'€™s external debts. It is, moreover, above the international benchmark of three-month imports.

The December result is the first increase recorded after the reserves posted persistent decline between February and November.

The rupiah exchange rate underwent sharp fluctuations during the period, prompting the central bank to continuously enter the market and use the reserves to calm volatility.

While the $5.7 billion rise represents good news, the increase was mainly supported by the government'€™s efforts to source external financing, rather than improvements in exports.

The government sold $3.5 billion-worth of global bonds in December and withdrew at least $850 million in loans from several institutions, such as the Agence Française de Développement (AFD), KfW Development Bank and Asian Development Bank (ADB).

As reported previously, the debt paper issuances and loan withdrawals were part of the government'€™s attempt to plug the 2015 state budget deficit and generate early funding for the 2016 state budget.

The Central Statistics Agency (BPS) will only issue data on the December exports in mid-January, but the figure has been on a downward trend so far.

Commenting on the reserves result, BI Governor Agus Martowardojo said that the central bank was still on the lookout for risks that might impact the reserves, citing falling oil prices, which could further hit commodity prices and exports.

Agus also highlighted the findings of a recent World Bank report on global prospects. The report forecasts continued economic slowdown in China and Japan, two of Indonesia'€™s largest export destinations.

Meanwhile, Bank Danamon economist Anton Hendranata said that it would be difficult to bring FX reserves back to the levels recorded in previous years.

'€œThey'€™re actually more likely to fall again, because the rupiah will continue to fluctuate this year. Of course, maintaining exchange rate stability is a priority for the central bank and it will spend the reserves again for that purpose,'€ Anton said.

Bank Mandiri economist Andry Asmoro said that Indonesia could not rely on exports for FX reserves, adding that additional funds would be generated from the government'€™s upcoming global bond issuances.

Andry said that capital inflows would still stream into the portfolio market and direct investment, but presumably at a lower amount than before.

'€œBI may not want to use the reserves too aggressively because we'€™re only entering the second week of 2016 and look at what'€™s already happening in China,'€ he said, adding that '€œmore awaits in the coming months'€.

Both economists agreed that the FX earnings held by exporters could help increase the reserves, but called for more efforts to persuade them to '€œlet go'€ of the FX and convert the reserves into rupiah.

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