TEMPO.CO, Jakarta - The increasing number of offshore loans incurred by the private sector has prompted Bank Indonesia Governor Agus Martwardojo to urge companies to better manage their credits. The reason cited by the central bank governor was that loans sourced from outside the country tended to be high-risk, given the fluctuating currency exchange rate and problems of liquidity.
Agus urged companies to manage their loans in a more efficient way. "We don't want the 1997 and 1998 [crises] to happen again," said Agus. He said that during those years, private off-shore loans were so massive that it was not known which sector had the highest debts. Agus met with CEOs reporting their companies' foreign credits on Thursday, October 30, 2014.
He disclosed that foreign loans, as of August 2014, had reached 53.8 percent of Indonesia’s total foreign debt. In anticipation of the high risks involved, the central bank recently issued a new Bank Indonesia Regulation (PBI) on the cautionary management of off-shore corporate non-bank loans. The Regulation, which will be in force on January 1, 2015, will apply to all non-banking companies. This measure was taken to prevent problems to foreign reserves liquidity caused by corporate debtors who have insufficient foreign exchange currency to repay their loans.
Bank Indonesia will work with the Financial Services Authority (OJK) and the Tax Directorate-General to oversee the implementation of this regulation.
Agus also urged companies to carry out hedging as one way of protecting themselves against the fluctuations of the exchange rate. Central bank sources confirmed that the exchange rate was a high-risk factor because off-shore loans were used to fund commercial activities inside the country, whose profits are in rupiah. "But the repayment of loans are done with foreign exchange," said Bank Indonesia Executive Director of Monetary Management, Filianingsih Hendarta.
AISHA SHAIDRA, MAYA NAWANGWULAN