[September 07, 2011] Indonesia confirms plan to regulate local firms' foreign debt Tweet Sep 07, 2011 (The Jakarta Post - McClatchy-Tribune Information Services via COMTEX) -- JAKARTA (THE JAKARTA POST/ANN) -- In agreement with Bank Indonesia (BI), the government also plans to issue a regulation that will limit local firms' exposure toward foreign borrowings, a senior official says. Lower costs associated with weaker foreign currency and interest rates have made local companies "comfortable" with cross-currency borrowings, either through bank loans or through global bond issuances, Finance Minister Agus Martowardojo said Tuesday. He added that currency risks, such as those that occurred during the 1997-1998 Asian financial crisis when the rupiah rapidly depreciated by eight-fold, lead to massive corporate debt defaults. "Therefore, we need to regulate so that licenses for foreign exchange borrowings for companies that do not have foreign exchange revenue streams that must be controlled," Agus told reporters at his office. The rules might be in the form of a Finance Ministry regulation, circulated policy for state firms, or a regulation issued by capital market and financial institution regulator Bapepam-LK. BI Governor Darmin Nasution, who planned similar rules for banks, said last week that although private companies' exposure on foreign borrowing remained manageable at present, "we need to find protection mechanisms for times of volatility". Risks in the forex market elevated as global economic recovery stalled over potential double-dip recession in the United States and debt troubles in European countries. Indonesia's economic resilience amid the global slowdown has lured overseas creditors to offer debt to the nation's private sector. "If firms export their output and earn in [forex], it won't be a problem to borrow in forex. If their revenues are in rupiah and their output is not for export, it is crucial not to be too daring and borrow [in forex]," Darmin said in an interview with The Jakarta Post and six other media outlets. "We don't want firms borrowing in forex to have difficulties paying out their maturing liabilities." Indonesia's debt-to-GDP ratio is currently about 26 percent, well below an average level of over 70 percent in Europe and the US. BI data shows Indonesia's outstanding external debt was US$214.5 billion as of April, US$85.9 billion of which was owed by the private sector and US$128.6 billion by government bond holders. Private firms borrowed S$6.3 billion new debts during the second quarter of 2011, up from US$4.4 billion during the previous quarter. Total new foreign debt in the first half reached $10.7 billion, up from US$6 billion in the same period last year and US$4 billion in the first half of 2009. Agus said that other than the currency mismatch, the regulation will also cover inequalities in the maturity and type of interest rate. "[The government and central bank] are just taking precautionary measures. It is positive. Unless you're an exporter, there would be a mismatch in terms of your revenue compared to your US dollar debt," Bahana Securities head of research Harry Su told the Post over the phone. "It's a bit premature to issue the regulation at the moment, but for the longer-term, it's a step in the right direction," he said citing data which indicates that listed companies' foreign borrowings have significantly decreased by more than seven-fold now compared with 1997-1998. Companies such as Indosat, the nation's second largest telecommunication firm, would suffer from the limitation on foreign borrowings, as it had high US dollar debts, whereas income was mostly in rupiah, Harry added. ___ (c)2011 the Asia News Network (Hamburg, Germany) Visit the Asia News Network (Hamburg, Germany) at www.asianewsnet.net/home/ Distributed by MCT Information Services [ Back To TMCnet.com's Homepage ]