Brokers monitor the trading of bonds and other debt papers at the Bank Rakyat Indonesia Treasury building in Jakarta. ( A Setyawan )

The strengthening rupiah in November led to an increase in Indonesia’s external debt, Bank Indonesia data has revealed. Meanwhile, the private sector also banked on the favorable borrowing conditions to seek funding from overseas, analysts have said.

Indonesia’s external debt position, a sum of foreign-denominated borrowing by the government and the private sector, was recorded at US$379.2 billion in November, $12.3 billion more than the position in the previous month.

The figure also meant that external debt was growing 7 percent year-on-year (yoy), above the 5.3 percent yoy growth posted in the previous month and also brought Indonesia’s debt-to-GDP ratio to 34 percent, a level BI considered safe as it was still lower than the ratio of peer countries.

The central bank said in a statement issued recently that the increase of Indonesia’s outstanding foreign debt was due to the increase in net debt, while the rupiah’s appreciation in November also contributed to the increase of foreign debt value.

Government debt, which also takes into account the amount borrowed by the central bank, grew 4.4 percent yoy to $180.5 billion thanks to inflows of foreign capital into the government’s debt papers (SBN).

Economic observer at the Asian Development Bank (ADB) Institute Eric Sugandi said the rise in Indonesia’s external debt despite the strengthening rupiah was a logical consequence of the relatively high number of foreign bondholders, who held the rupiah-denominated SBN.

The private sector’s borrowing, which includes the debt of state-owned enterprises (SOEs), was recorded at $189.3 billion, growing 10.1 percent yoy in November, driven by a net buy of corporate bonds by foreign investors.

Foreign debt in the private sector in November was largely concentrated in four sectors — financial and insurance services, manufacturing, electricity, gas and steam procurement and mining. The four sectors account for a 73.9 percent share of the overall private sector debt.

Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira Adhinegara said the private sector’s accelerated foreign debt growth was caused by its need for refinancing matured debt and preparing funds for operations in early 2019.

The strengthening of the rupiah in November could also influence the private sector to seek funds from abroad, Bhima said, out of concern that it could weaken in the future.

Brokers monitor the trading of bonds and other debt papers at the Bank Rakyat Indonesia Treasury building in Jakarta. ( A Setyawan )

“In November, the rupiah appreciated to between 14,600 and 14,800 [per US Dollar] from previous positions that once touched 15,200 [per US dollar]. This opportunity was used by the private sector to seek funding out of concern that the rupiah would weaken in the period leading to the presidential election [in April].” said Bhima.

Maybank Indonesia economist Myrdal Gunarto pointed out that the relatively limited lending capacity from local borrowers had encouraged the private sector to seek alternative sources of funding from foreign capital.

“Domestic banks’ lending capacity is already limited as their loan to deposit ratio [LDR] is already above 92 percent. It made the private sector seek sources of funding from abroad,” said Myrdal, while also concurring with Bhima that the appreciation of the rupiah was another factor that explained the private sector double-digit external debt growth.

Myrdal also said the seasonality factor could be at play as the private sector’s refinancing needs were at their peak in the period between the second and the third quarter.

He went on to say that the need for financing from external sources was likely to remain, as Indonesia’s fiscal balance was still negative and domestic banks’ lending had reached its full capacity, but said Indonesia’s external debt growth would be moderate going forward.

“Under the assumption that the deficit in the fiscal as well as current account continue to shrink, it is hoped that the pace of [Indonesia’s] foreign-denominated debt will grow moderately,” he said. (bbn)