Risk Mitigation Should be Improved
Business players, including importers who have financial obligations in the form of foreign currencies, should carry out hedging transactions in order to mitigate the exchange rate risk.
JAKARTA, KOMPAS – Business players, including importers who have financial obligations in the form of foreign currencies, should carry out hedging transactions in order to mitigate the exchange rate risk. They can also carry out international trade transactions with a number of countries using local currency.
Commercial banks are also required to manage the exchange rate risk and the impact of the increase in the interest rate.
The head of the Bank Indonesia (BI) financial market department, Nanang Hendarsyah, said in Jakarta on Wednesday that importers and entrepreneurs should hedge their foreign currency denominated debts to reduce risk. There are a number of hedging facilities available at present.
"BI always maintains the stability of the exchange rate. To maintain the stability, the central bank needs support from business players who hedge their foreign debts. It is needed in order to reduce the foreign exchange risk, which could affect the exchange rate,” said Nanang.
Commercial banks should also require that their customers provide cash of at least 10 percent of the value of their national transaction as stipulated in Financial Services Authority (OJK) Regulation No. 6/2018, the revision of OJK Regulation No. 7/2017 concerning prudential principles in conducting activities on “structured products” for commercial banks.
According to the central bank’s data as of the end of 2017, the number of corporations that have foreign currency denominated debts maturing between zero to three months totaled 416. The companies who have foreign debts maturing between three to six months totaled 223. Those with foreign debts with maturities of both zero to three months and three to six months totaled 139 companies.
In Semarang, Central Java, BI deputy governor Sugeng said the central bank continued to strengthen cooperation with its counterparts overseas. In addition to overcoming liquidity difficulties, the bilateral cooperation is also needed to cope with the possible fall in the value of the rupiah against foreign currencies due to uncertainties in the global economy.
“The cooperation and international coordination, among other measures, in the form of a bilateral swap enables Bank Indonesia to ask for assistance if the rupiah is under strong pressure," said Sugeng during an event on the dissemination of the 2017 Indonesia Economic Report in Semarang on Wednesday.
Coordinating Economic Minister Darmin Nasution said the fluctuation of the rupiah against the US dollar was relatively more stable on Wednesday.
"In fact, last week the US President, on his Twitter [account], accused a number of countries of manipulating the values of their currencies, causing market turmoil. But, as the allegation was baseless, it would not continue, and the turmoil would subside,” Darmin said after closing the 10th National Congress of the Indonesian Employers Association (Apindo) in Jakarta on Wednesday.
Based on the reference rate of Jakarta Interbank Spot Dollar Rate (Jisdor) published by BI on Wednesday, the rupiah exchange rate slightly strengthened to Rp 13,888 per US dollar on Wednesday from Rp 13,900 on the previous day.
Tourism
Hariyadi B. Sukamdani, who was reelected as the chairman of Apindo for the 2018-2023 period during the organization’s national congress, said that Indonesia should be able to capitalize on advantage from the increase in the value of the dollar by promoting the tourist industry so that foreign exchange earnings could be increased.
"The opportunity in the tourist sector is quite big. Last year, foreign tourists totaled between 13 million and 14 million people. This year, the number is expected to reach 17 million people," he said.
According to a lecturer on contemporary public policy at the University of Indonesia, Sapta Nirwandar, Indonesia should promote tour packages abroad in order to increase foreign exchange earnings from the tourist sector.
In addition to foreign tourists, the government also needs to promote the meetings, incentives, exhibitions, and conventions (MICE) industry to boost foreign exchange earnings.
Meanwhile, PT Astra International plans to raise the prices of cars for exports if the rupiah continues to weaken in order to increase the company’s foreign exchange earnings.
However, the president director of Astra International, Prijono Sugiarto, said that the automotive company was still holding back the price increase plan. The company would try to use other measures to cope with the impact from the fall in the value of the rupiah, he added.
"We still have the increase in prices of cars for export. The impact from the weakening of the rupiah can still be coped with by increasing the percentage of local components. The local components for our two-wheeled vehicles have reached 95 percent," said Prijono. He said that about 90 percent of Toyota\'s car production had used local components.
Meanwhile, the director of Astra International, Henry Tanoto said that the company would further expand its export market to at least one more country this year in order increase foreign exchange earnings. At present, about 75 percent of the company’s car production is exported and the other 15 percent is sold in the domestic market.
"If the rupiah falls sharply, the price of the cars will be raised, such as by 2 percent. Now, we are trying to survive. If we raise the price today, it would be difficult for us to lower it again in the future," Henry said.
Impact on the airline
Lion Group president director Edward Sirait said the airline would be still able to survive amid the weakening of the rupiah if there was support from other parties. For example, Pertamina has not raised the prices of aviation fuel.
"Pertamina\'s avtur [aviaton fuel] price is higher compared to those in other ASEAN countries. If the aviation fuel price is not increased, the airlines will, at least, have more room to improve efficiency in other areas," Edward said after a panel discussion on the challenges and opportunities of the Indonesian aviation market during the ASEAN Single Aviation Market event in Jakarta on Wednesday.
The director general of Air Transportation, Agus Santoso, said that a fall in the value of the rupiah would not prompt the government to immediately raise flight fares. "We\'ll first monitor the fluctuation of the rupiah. We will also consult the Finance Ministry on the exchange rates, and at what level the rupiah will be stabilizing," said Agus.
The head of the Center for Economic and Public Policy Studies at Gadjah Mada University, A. Tony Prasetiantono, said that there were three factors causing the fall of the rupiah against the US dollar. First, the composition of the country’s foreign exchange reserves, which until April totaled US$126 billion, is very vulnerable. Most of the foreign exchange reserves are sourced from short-term foreign capital and not owned by Indonesian citizens. This can be seen in the stocks and bonds in Indonesia’s stock exchange, as more than 50 percent of them are owned by foreign investors.
Second, the rise in global oil prices would affect the credibility of the state budget. The high oil prices would force the government to increase fuel subsidies, especially ahead of the presidential election. It could lead to an investment shift to US dollar-based instruments. Third, the fall in the rupiah was also caused by the central bank’s low interest rate policy.
"In the US, the era of low interest rates has been gone since May 2013. I think the BI seven-day reverse repo rate, which is now at 4.25 percent, should not be lowered again because the tool to support economic growth is not only the low interest rates," said Tony.
(CAS/HEN/DIM/MED/ARN/KRN)