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Today's Headlines Debt
Indonesia's government debt reached IDR 3,938.7 trillion (approx. USD $294 billion) at the end of 2017, up IDR 423.3 trillion from its position of IDR 3,515.4 trillion at the end of 2016. Despite rising, Indonesia's public debt is still safe at 29.2 percent of gross domestic product (GDP).
Reza Akbar, economist at the Institute for Development of Economics and Finance (Indef), is concerned about rising public foreign debt. Although the government and various analysts repeatedly state that Indonesia's (public) debt-to-GDP ratio is safe at a level below 30 percent, Akbar says debt should be seen in relation to government revenue.
The government of Indonesia says the budget deficit (set in the state budget) and debt ratio are safe. In Indonesia's 2017 State Budget the government targets a 2.41 percent of gross domestic product (GDP) budget deficit (below the legal limit of 3 percent of GDP as stipulated by Law No. 17/2003). Meanwhile, Indonesia debt-to-GDP ratio was 28 percent at end-2016, a very comfortable ratio (for comparison, Japan's debt ratio exceeds 200 percent of GDP).
Indonesian coal miner Bumi Resources plans to conduct a rights issue in June 2017 through which it aims to raise IDR 26.9 trillion (approx. USD $2.0 billion). Bumi Resources will sell 29.1 billion shares, equivalent to 79.5 percent of the company's enlarged capital. Proceeds from this corporate move go to the debt restructuring program. Bumi Resources wants to pay off its debt to the China Investment Corporation (CIC) as well as eight other creditors. Bumi Resources has some USD $4.2 billion worth of commercial debts (excluding intercompany loans).
Bumi Resources Minerals, an Indonesian (non-coal) mining company, targets to settle its USD $350 million debt to Credit Suisse AG in November 2016. The miner will use funds generated through the sale of its 24 percent stake in Newmont Nusa Tenggara (to Amman Mineral Internasional). Herwin Hidayat, Investor Relations Head at Bumi Resources Minerals, informed that the miner is currently still in talks with Credit Suisse and Amman Mineral Internasional regarding the debt repayment.
The central bank of Indonesia stated that Indonesia's foreign debt grew 6.3 percent (y/y) to USD $319.0 billion in April 2016. Foreign debt of Southeast Asia's largest economy in April consists of private sector external debt (USD $165.2 billion) and public sector external debt (USD $153.8 billion). Indonesia's private sector foreign debt continued to ease as local companies have been more careful in taking up new foreign debt due to the weakening rupiah in 2013-2015. In April, private sector external debt fell 1.1 percent (y/y).
Indonesian credit rating agency Pefindo (Pemeringkat Efek Indonesia) says the value of issued debt paper in Indonesia may reach IDR 90 trillion (approx. USD $6.8 billion), up 34 percent from the IDR 67 trillion worth of debt paper that was issued in Indonesia last year. Debt paper involves bonds, sukuk (Islamic bonds), and medium term notes. So far this year, Pefindo has been tasked to rate up to IDR 44.1 trillion worth of debt paper, while debt paper that has been issued up to May totaled IDR 25 trillion (approx. USD $1.9 billion).
On 1 May 2016, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website over the last seven days. Most of the topics involve political and economic matters such as the 12th economic policy package, problems related to the land reclamation project off the coast of Jakarta, an update on inflation, the palm oil industry, smartphone usage, the most profitable companies, and much more.
Global credit rating agency Moody's Investors Service released a report that includes a warning about the current state of Indonesia's corporate debt. Although Moody's is concerned about the relatively high reliance of Indonesian companies on foreign sources for their debt, the credit rating agency kept Indonesia's sovereign rating at Baa3 with a stable outlook. Moody's noted that Indonesia's government and corporate debt stands at 26.8 percent and 23.7 percent of the nation's gross domestic product (GDP), respectively.
Indonesia's foreign debt rose 3.7 percent (y/y) to USD $311.5 billion at end-February 2016, a higher growth pace compared to the 2.2 percent (y/y) recorded in the preceding month. The central bank of Indonesia (Bank Indonesia) informed that rising foreign debt was solely due to higher public sector foreign debt, while private sector foreign debt in fact eased. The Indonesian government took up long-term foreign debt to fund its ambitious infrastructure development programs. As a result, public sector external debt rose 9 percent to USD $146.9 billion in February, or 47.2 percent of Indonesia's total foreign debt.
Latest Columns Debt
External debt of Indonesia grew at a pace of 10.7 percent year-on-year (y/y) in October 2014, slightly slower than the 11.2 percentage point (y/y) growth pace in the previous month, according to a statement of Indonesia’s central bank (Bank Indonesia). Total outstanding external debt of Indonesia reached USD $294.5 billion in October (from USD $292.3 billion in the previous month). While growth of public sector external debt slowed in October, private sector external debt accelerated.
The Governor of Indonesia’s central bank, Agus Martowardojo, said that he expects inflation to accelerate to 6.1 percent year-on-year (y/y) in November 2014, significantly up from 4.83 percent y/y in the previous month. Accelerated inflation is caused by the multiplier effect triggered by the recent subsidized fuel price hike in Southeast Asia’s largest economy. On 18 November 2014, the government introduced higher prices for subsidized fuels in a bid to reallocate public spending from fuel consumption to structural development.
Total foreign outstanding debt of Indonesia continues to grow at a robust pace. Based on data from the country’s central bank, total external debt rose 11.2 percent year-on-year to USD $292 billion at the end of September 2014 as private Indonesian companies have been eager to seek lower interest rates abroad. Privately-held foreign debt was up 14 percent y/y to USD $159.3 billion at end-September. Central Bank official Tirta Segara said that private sector debt is concentrated in the financial, manufacturing and mining sectors.
Non-bank corporations in Indonesia that hold external (foreign-denominated) debt will be forced to hedge their foreign exchange holdings against the Indonesian rupiah with a ratio of 20 percent in the period 1 January 2015 to 31 December 2015 in an effort to limit risks stemming from increased private sector external debt. At end-August 2014, privately-held foreign debt stood at USD $156.2 billion (53.8 percent of the country’s total external debt), increasing three-fold from end-2005 and thus jeopardizing macroeconomic stability.
Bumi Resources, a leading Indonesian coal mining company, came close to default on its USD $300 million November 2016 bond before paying an overdue coupon earlier this week. The company, which is in the hands of the controversial Bakrie family, is obliged to make two coupon payments per year but postponed payment due on 12 May 2014 in order to negotiate with its creditors and lenders. According to a statement of Bumi Resources Director Dileep Srivastava, the payment was done on 11 June 2014.
Standard & Poor’s (S&P) affirmed Indonesia's sovereign credit rating at BB+/stable outlook. Favorable fiscal and debt metrics as well as moderately strong growth prospects were cited as the key factors supporting the affirmation of Indonesia's sovereign credit rating. On the other hand, moderately weak institutional strength, low GDP per capita and external vulnerability are factors that can negatively influence the rating. S&P also expects that Indonesia's sustainable economic policies will be maintained after the 2014 presidential election.
Total government debt of Indonesia rose IDR 781 trillion (USD $64.5 billion) between 2009 and 2013 to IDR 2,371.39 trillion (USD $196 billion). This growing outstanding government debt is mainly caused by government loans to finance its State Budgets (APBN) as well as recent sharp rupiah depreciation (as part of this debt is denominated in foreign currencies). In the same period, Indonesia's per capita debt rose from IDR 6.8 million (USD $561) to IDR 8.6 million (USD $710), a 26.4 percent growth.
Indonesia’s external debt growth continued to slow in October 2013. Debt grew 5.8 percent (yoy) to USD $262.4 billion compared to 8.6 percent (yoy) growth in the previous month. Slowing growth in external debt occurred both in the public and private sector. Public sector external debt position at the end of October 2013 grew 0.5 percent (yoy) to USD $125.8 billion compared to 2.1 percent (yoy) in September. Meanwhile, private sector external debt grew steadily at 11.1 percent (yoy) to USD $136.6 billion as compared to the previous month.
On Friday (29/11), the last trading day of November 2013, the Indonesian rupiah exchange rate continued its downward spiral. The Jakarta Interbank Spot Dollar Rate¹ fell 0.39 percent to IDR 11,970 per US dollar amid concern about the winding down of the quantitative easing program, Indonesia's wide current account deficit, a disappointing US dollar-denominated bond auction and surging US dollar demand for earnings repatriation as well as foreign debt payment. Considering the full month of November, the rupiah depreciated 6.61 percent.
International financial services company Standard & Poor's (S&P) downgraded its outlook on Indonesia’s BB+ rating from positive to stable as the agency assessed that Indonesia's reform momentum is fading and the external profile is weakening. The decision came as a surprise as Indonesia's government had just declared to reduce its massive spending on fuel subsidies starting from next month. These subsidies were the main reason why S&P had not upgraded Indonesia's credit rating to investment grade yet.
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