TO KEEP OVERSEAS DEBT UNDER CONTROL

Indonesia’s overseas debt [ULN] posted increase in May 2014 which was due to high debt of the private sector. BI noted that ULN in May grew by 9.7% year-on-year to be come USD 283.7 billion.

ULN annual growth in May 2014 was posted as higher compared to growth in April 2014 at 7.7%. ULN kept on growing since December 2013. Growth was in 2 sectors, i.e. public and private.

Public overseas debt in May grew by 4.1% [y o y] to become USD 132.2 billion. In the pervious month Public ULN only grew by 2.2% [y o y]. The increase was account of bonds issued by the Government. Investors’ interest in State’s SUN bind could increase Indonesia’s overseas debt in the public sector. Without the government having to issue new SUN, public ULN could increase if they bought bond at the secondary market from domestic investors.

Broadly speaking private ULN could increase faster than public ULN. BI noted that private ULN in May grew by 15.2% [ y o y ] to become USD 151.5 billion. In the previous month private ULN posted growth of 13.2% [ y o y ]. Increase of private ULN was among others because some BUMN corporate issued global bond.

Sector wise, growth of private ULN was also driven by ULN growth in the financial industry sector, electricity, gas, and clean water. ULN growth of the financial sector was 21.2% [ y o y ], this figure was higher than the previous month at 13.2% [ y o y ], The point was that there was increased ULN in the sectors grew by 9.8% and in April grew by 1.8%. Growth of debt reflected business activities business activities in those sectors.

By span of time, long term and short term ULN were increasing. Long term ULN grew by 10.1% in May to become USD 234 billion, higher than the previous month at 9.9%. Long term ULN was dominated by the public sector, i.e. 94.5% of total public ULN, while short term ULN grew by 2.3% [ y o y ]. This short term ULN were mostly used for financing import of oil. So short term ULN was noteworthy because it was of high risk. However growth of ULN till last May was still health enough for sustaining the external sector although it must be watched on.

In tune with BI, the Government was beginning to worry about Indonesia’s debt Service Ratio which kept increasing ULN debt of the private sector, the expanding ratio was due to Government policy which often delay payment to Pertamina at year end.

DSR could be described as ratio of total credit installment to state’s income. Only trouble was, so far there had not been any regulation issued by the Government or the been Central Bank to prohibit private companies to borrow from abroad. So far the Government had been quite aware of the increasing DSR at home.

In line with increasing foreign debt, now there is rule for private companies to report their overseas debt, whereby the Government and BI could know the debt posture of the private sector. By this obligation, it was expected that on due date the borrowers would be ready to pay. Therefore it was important to adopt hedging by private corporations.

Although there was no regulation which forbade private companies to borrow money abroad, BI must constantly monitor the development of overseas debt. Moreover increase of foreign debt was due to loan-to deposit ratio of Indonesia banks which had come to 94%. BI had limited LDR at maximum 92% so liquidity of Indonesian banks to extend credit to companies had its limit.

So it was the right step to monitor the development of private overseas debt. It was hard indeed to ask domestic corporations not to borrow money from abroad, since it was extremely costly to borrow from local resources. With inflation as high, and that was the reason why private corporations tend to borrow from abroad.

It came as no surprise that foreign banks were getting more popular among national multi-financing customers. Evidently in May 2014 last the amount of multi-financing credit extended by foreign banks increased by 32.61% against same period last year. BI data had it that multi-financing obtained from foreign banks came to Rp92.48 trillion in the first 5 month this year. Compare this with that of 2013 at only Rp69.74 trillion.

Compare this with increase of lending by local banks to multi-financing agencies which was only 8.19%. By end of May 2014, total credit extended by local banks to multi-financing agencies was posted at Rp133.49 trillion, higher than that of May 2013 at only Rp123.38 trillion. Multi-financing agencies tend to choose overseas banks because the swap rate to Rupiah was preferable, by early year the swap was competitive and the rate was good.

On the other hand, financing from local banks was getting more costly, moreover with the increasing bank interest at home which increased multi financing burden, while it was hard for multi-financing agencies to increase interest as competition was high.

Adira Finance was one of the multi-financing agencies who obtained credit from a foreign bank. The amount was USD 300 million with tenure of 3 years. The fund obtained in April was from Japan, India, and Taiwan. Meanwhile Radana Finance planned to borrow money from overseas banks in Semester 2. This year, Radana finance needed fund of Rp 1.8 trillion. Apparently the portion of syndication by overseas banks was bigger compared to medium Term Notes [MTN].

Meanwhile Astra Sedaya Finance [AAF] claimed they did not only rely on overseas credit; AAF also considered other option for financing resources like bonds and overseas borrowing. Last April, total AAF credit was USD 670 million obtained from 30 banks including overseas credit was still in the state of good health, safe and productive. This was perhaps extra homework for the next Government. (SS) 

Business New - August 6, 2014