Since mid-2013, the Indonesian rupiah has been highly vulnerable to (expectation of) US monetary policy. Previously, the era of cheap US dollars made it attractive to take up a US dollar loan (US dollar loans to emerging markets surged significantly after the Lehman crisis due to low interest rates charged on these loans). However, with the winding down of the US quantitative easing program in 2014 and current looming higher US interest rates (expected in 2016), the rupiah has depreciated nearly 40 percent against the US dollar between 1 June 2013 and 19 October 2015. Such currency fluctuation implies serious consequences for short-term foreign debt of local Indonesian companies.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Martowardojo said there are currently 1,600 local Indonesian companies that have foreign debt and nearly three-quarter of these companies have complied with the minimum hedging requirements implemented by Bank Indonesia. However, 320 local companies still need to comply with hedging requirements.

Starting from 1 January 2015, Bank Indonesia forces Indonesian non-bank corporations (that hold foreign debt) to meet three requirements (trade debt is exempted from these requirements):

1. a minimum hedging ratio of 20 percent for the period 1 January 2015 to 31 December 2015. The ratio increases to 25 percent from 1 January 2016. Bank Indonesia notes: “The ratio shall be applicable to the negative balance between foreign currency assets and foreign currency liabilities with a maturity period of up to three months and those that shall mature between three and six months.”

2. a minimum forex liquidity ratio; Indonesian non-bank corporations (that hold external debt) will be required to provide foreign currency assets totaling at least 50 percent of the value of foreign currency liabilities with a maturity period of up to three months in the period 1 January 2015 to 31 December 2015. From 1 January 2016, the liquidity ratio increases to 70 percent.

3. a minimum credit rating; Indonesian non-bank corporations (holding external debt) are required to have a credit rating of at least BB (or equivalent), issued by an authorized Rating Agency. “This requirement shall be effective for external debt signed or issued after 1 January 2016, but not applicable to refinancing or bilateral/multilateral external debt used to finance infrastructure projects.”

Based on the latest data from the central bank, Indonesia’s total foreign debt stood at USD $303.7 billion in July 2015, consisting of USD $134.5 billion public sector foreign debt and USD $169.2 billion private sector foreign debt. Indonesia’s private sector foreign debt rose three-fold between end-2005 and 2014, surpassing the level of public sector external debt in 2012.

Indonesia's Foreign Debt - 2015:

2015     Public Debt
    Private Debt      Total Debt
January     $135.7 billion     $162.9 billion     $298.6 billion
February     $134.8 billion     $164.1 billion     $298.9 billion
March     $132.8 billion     $165.3 billion     $298.1 billion
April     $132.9 billion     $167.2 billion     $300.1 billion
May     $133.5 billion     $168.7 billion     $302.3 billion
June     $134.6 billion     $169.7 billion     $304.3 billion
July     $134.5 billion     $169.2 billion     $303.7 billion

Indonesia's Foreign Debt - 2014:

2014     Public Debt
    Private Debt      Total Debt
January     $127.9 billion     $141.4 billion     $269.3 billion
February     $129.0 billion     $143.1 billion     $272.1 billion
March     $130.5 billion     $146.0 billion     $276.5 billion
April     $131.0 billion     $145.6 billion     $276.6 billion
May     $132.2 billion     $151.5 billion     $283.7 billion
June     $131.7 billion     $153.2 billion     $284.9 billion
July     $134.2 billion     $156.4 billion     $290.6 billion
August     $134.2 billion     $156.2 billion     $290.4 billion
September     $132.9 billion     $159.3 billion     $292.3 billion
October     $133.2 billion     $161.3 billion     $294.5 billion
November     $133.9 billion     $160.5 billion     $294.4 billion
December     $129.7 billion     $162.8 billion     $292.6 billion

Source: Bank Indonesia

Last week, Standard & Poor's warned that defaults by Indonesian companies are a serious threat over the next 18 months due to these companies' eroded balance sheets amid Indonesia's current economic slowdown and the weak rupiah. This warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt in Singapore's local currency corporate bond market as the company may not be capable to meet obligations indefinitely.

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