Private sector external debt grew 14.7 percent (y/y) in November, slower than the growth pace in the previous month (15.4 percent y/y). Most of this debt (nearly 65 percent of total private sector external debt) was in the form of loan agreements, which rose 9.7 percent (y/y).

Slowing growth of Indonesia’s private sector foreign debt in November 2014 was mainly due to slowing external debt growth in the financial sector (growing by 31.2 percent y/y from 34.3 percent y/y in October 2014 and a contraction of debt growth in the mining sector). Bank Indonesia said that “overall, private sector external debt in November 2014 was mainly concentrated in the financial, mining, manufacturing, and electricity, gas & water supply sectors (76.9 percent of total private sector external debt).” External debt of the manufacturing and electricity, gas & water supply sectors rose 14.3 percent (y/y) and 9.8 percent (y/y), respectively, up from 13.8 percent (y/y) and 5.1 percent (y/y) growth in the previous month.

About 84 percent of Indonesia’s total foreign debt constitutes long-term debt. Nearly 97 percent of public sector foreign debt is long-term debt, while 72.7 percent of private foreign debt is long-term debt.

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

Source: Bank Indonesia

In a statement Bank Indonesia said that the current debt levels of Indonesia are considered healthy. However, the institution also announced that it continues to carefully monitor private sector foreign debt as this has grown sharply in recent years (this is partly the result of the higher interest rate environment in Indonesia since mid-2013 which makes companies prefer to seek cheaper funds abroad). Earlier this month, Bank Indonesia issued new regulations that aim to safeguard Indonesia’s financial stability. These regulations force Indonesia’s non-bank corporations to apply prudent fiscal management regarding foreign-denominated debt, including hedging. Foreign debt is particularly worrisome amid the current volatile global economy brought about by uncertainty about global economic growth and looming higher US interest rates in the second half of 2015 (global liquidity is expected to tighten due to the end of the US Federal Reserve’s accommodative monetary policy). Recent research conducted by Bank Indonesia signaled that the country’s private sector foreign debt is vulnerable to three risks i.e. currency risk, liquidity risk and overleverage risk.

Last week, the World Bank warned that tighter external financing may result in higher domestic interest rates, hence increasing pressures on local banks, businesses, and households in servicing their debt and blocking ability to invest or spend. Countries with historically high private sector debt are particularly at risk according to the World Bank’s latest Global Economic Prospects.

Further Reading:

Bank Indonesia Concerned about Level of Privately-Held Foreign Debt
Foreign Debt of Indonesia Grew 10.7% y/y in October 2014
Bank Indonesia Forces Companies to Hedge Foreign Debt