The Jakarta Post
Foreign investors are worried that surging repatriated funds and foreign debt payments in the next two months might result in a US dollar shortage at local banks, an investment banker has said.
JPMorgan Chase senior country officer for Indonesia Haryanto T. Budiman said that a US dollar shortage in the nation's banking system would bring intense pressure on the rupiah, which has been declining over the last three months.
Foreign investors were beginning to become 'a bit nervous' about the availability of US dollars in the upcoming months, Haryanto said.
The US-based global banking giant is known as a major player in Indonesia's foreign exchange (forex) business.
Foreign investors, Haryanto said, were 'concerned about the availability of dollars because there are certain months in the year when the demand for dollars is very high'.
Demand for the greenback typically soars between May and June, as foreign companies need more dollars to repatriate their rupiah-denominated dividends to headquarters overseas, according to Haryanto.
'At the same time, bondholder investors are also looking for dollars because they need to convert coupon payments for the rupiah bonds that they have been holding into dollars,' he added.
The mismatch between the supply of and demand for US dollars in the local currency market were blamed for the depreciation and the volatility of the rupiah, Asia's worst-performing currency last year.
Indonesia's robust economic growth has translated into massive business expansion among the foreign companies operating here, driving up dollar demand.
However, the US dollar supply in Indonesia remains limited, as many investors have been reluctant to deposit their greenbacks in local banks due to a lack of appropriate financial instruments.
Indonesia's economy is also exposed to rising private sector debts and high foreign ownership rates for government bonds, both of which could trigger unexpected capital outflows that might exert unwanted pressure on the rupiah.
Projected payments of Indonesia's dollar debt and interest would amount to Rp 90.5 trillion (US$9.32 billion) this year, while 33 percent of all government bonds currently traded in the secondary market were owned by foreigners, according to government figures.
The rupiah slid 0.1 percent to 9,716 per US dollar as of 3:56 p.m. in Jakarta, according to Bloomberg. The rupiah has seen intense pressure in the first three months this year. Bank Indonesia's (BI) forex reserves fell by a staggering $8 billion in a three-month time frame only to touch $104.8 billion ' a two-year low ' at the end of March.
'We believe that Bank Indonesia will try to defend the currency as much as it can, because clearly the level that we are seeing now, 9,710 to 9,720, is the level that BI is still trying to keep,' Haryanto said.
Meanwhile, the central bank has been optimistic on its outlook for the rupiah, with outgoing BI
Governor Darmin Nasution saying last week that pressure on the rupiah would moderate and not grow more intense, at least in the next three months.
The central bank has also said that the rupiah would strengthen if a proposed policy to increase fuel prices for private cars by 45 percent to Rp 6,500 per liter was implemented as planned, which would reduce the government's fuel subsidy by at least Rp 21 trillion.
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