Impacts of Rupiah Fluctuations and Rising Government Debts
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13 July 2024 11:27 WIB
TEMPO.CO, Jakarta - CEO of BCA, Jahja Setiaatmadja, explains the impacts of volatile exchange rates, rising government debt, and how the market awaits the new cabinet.
RUPIAH is under heavy pressure with the exchange rate hovering around 16,500 per United States dollar. However, Jahja Setiaatmadja, 68, remains optimistic about Indonesia’s banking and economic situations. “Liquidity is still good,” said the Chief Executive Officer (CEO) of Bank Central Asia (BCA), a private bank with the largest asset value in Indonesia, approximately Rp1,444 trillion (around US$87.5 billion), since 2011.
Jahja said the government could control the US dollar exchange rate by raising the benchmark interest rate or by market intervention. However, he added, the intervention policy is temporary in nature. Therefore, he suggested Bank Indonesia raise interest rates.
The Jakarta-born banker also drew attention to the economic projections after the government transition. Jahja advised the government to be cautious about debts. He emphasized that debt for operational purposes must be limited. “The business community is also waiting to see if the figures in the new government will be market-friendly and if their policies support business,” he said.
Jahja spoke with Tempo journalists Raymundus Rikang, Sunudyantoro, Praga Utama, and Yosea Arga Pramudita in a one-hour video conference interview. He explained that his schedule was quite packed, as he would be leaving shortly for Mexico to attend a routine meeting of global banking executives. “We share experiences and keep one another updated about developments in the banking industry,” said the accounting graduate of the University of Indonesia.
As a banker, how do you view Indonesia’s current banking situation?
I see the liquidity is still good. It means, for the supply side, the rupiah is still quite okay. The liquidity needs are not too high yet. Bank credit growth has indeed hit double digits of 10 to 11 percent recently from last year’s single digits.
What is the current situation at BCA?
We are grateful that credit demand at BCA is quite high, reaching double digits in June. The credit-to-savings ratio has risen above 82 percent or even up to 84 percent. But we are still quite happy, albeit cautiously. We support micro business credit as well as mine downstream (activities), particularly mining smelters.
What is interesting about the smelter business for the banking industry?
Downstreaming activities require trillions of rupiah in capital funds. So, only banks like BCA, Bank Mandiri and Bank Negara Indonesia (BNI) are capable of funding them. We also have syndication with Mandiri and BNI. We consider financing for downstream activities important to support programs initiated by President Joko Widodo to give added value. Downstream activities significantly increase the value compared to selling raw materials.
The appeal of Indonesia’s nickel is declining.
Before it came to fame as a component of electric cars, nickel was primarily used to mix with aluminum and stainless steel. The demand has been consistent. But thanks to electric cars, the demand skyrocketed. Lately, several alternatives have been found, and the high nickel prices have been corrected. But we see the demand for nickel will still exist in the long run. It will not become negative, although the prices will not be as high as before.
