Weak rupiah helps push down RI’s liabilities

Jakarta, 31 December 2015

Weak rupiah helps push  down RI’s liabilities

The sharp drop in the rupiah against the US dollar during the third quarter this year caused a decline in Indonesia’s net foreign financial liabilities from the previous quarter, the latest report from Bank Indonesia (BI) has shown.

According to the International Investment Position (IIP) report that was published on Wednesday, net foreign liabilities fell 11.3 percent on a quarterly basis to US$327.37 billion.

Foreign liabilities comprise several components, namely foreign direct investment (FDI), portfolio investment, financial derivatives and other forms of investment.

Hendy Sulistiowati, the executive director of BI’s statistics and monetary department, partially attributed the decline to the fall in foreign direct investment due to the depreciation of the rupiah that occurred between July and September.

“The amount of foreign direct investment in dollar terms was not as large as before due to the depreciation and because the transactions were recorded in rupiah,” she said in a media briefing.

For instance, a direct investment of Rp 5 trillion was worth around $381.62 million when the average exchange rate of rupiah was 13,102 per US dollar in the second quarter.

However, the rupiah depreciated sharply in the third quarter, especially following the surprise devaluation of the renminbi and amid heightened tension in the financial markets in anticipation of an expected US interest rate hike.

As a result, the rupiah plunged to an average of 14,016 per US dollar in the July to September period. The fall caused Rp 5 trillion in direct investment to drop to $356.73 million in dollar terms.

The financial market rout in the third quarter also triggered foreign fund outflows as investors looked for safer havens.

As much as $25.03 billion of hot money left the Indonesia Stock Exchange (IDX), leaving foreign equities at $66.81 billion in the third quarter from $91.84 billion in the second quarter.

“It’s worth noting as well that the economic slowdown in the third quarter made companies postpone their expansion plans, lowering the amount of offshore borrowings within foreign liabilities,” Hendy said.

In terms of maturity period, foreign liabilities were still mostly made up of long-term investment instruments, with maturity periods exceeding one year.

By the end of September, almost 94 percent of the liabilities were long-term instruments. Hendy argued that such a figure was “okay” because “they reflected the dominance of FDI in our foreign liabilities. We would worry if they were dominated by portfolio investments because they could flee anytime”.

Meanwhile, the report revealed that total assets — reflecting the amount of foreign exchange (FX) reserves and Indonesia’s investment overseas — dropped 2 percent quarter-to-quarter to $210.07 billion.

Depleting FX reserves, which accounted for almost half of the assets, mostly led the decline.

The third quarter saw BI frequently enter the market to stabilize the rupiah. The central bank spent $3.6 billion of its reserves in September alone.

Separately, Bank Central Asia (BCA) economist David Sumual said that the report reflected the country’s high dependence on foreign funds to finance development.

“We have great ambitions to develop this and that, but we still need foreign resources. Luckily, most of them are long term,” he said.

Source : The Jakarta Post