Foreign Debt Growth Indonesia Slows, What about the Interest Rate?

Indonesia’s public foreign debt increased 1.7 percent (y/y) to USD 132.8 billion in Q1-2015, slower than the five percentage point growth that was recorded in Q4-2014. Meanwhile, the country’s private foreign debt grew 13 percent (y/y) to USD $165.3 billion, down from a 15 percentage point growth pace in the preceding quarter.

In the first quarter of 2015 Indonesia’s GDP growth was a disappointing 4.71 percent (y/y), a five-year low, due to the country’s weak export performance (brought about by sluggish global economic activity) and weak domestic consumption (due to the country’s relative high interest rate environment and sluggish government spending). As such, more pressure has been put on Indonesia’s ability to pay back loans, evidenced by a higher debt service ratio (percentage of external revenue used to repay debt). The country’s ratio grew from 52 percent in Q4-2014 to 56 percent in Q1-2015.

Indonesia's Foreign Debt - 2015:

2015	Public Debt	Private Debt	Total Debt
January	$135.7 billion	$162.9 billion	$298.6 billion
February	$134.8 billion	$164.1 billion	$298.9 billion
March	$132.8 billion	$165.3 billion	$298.1 billion

Indonesia's Foreign Debt - 2014:

2014	Public Debt	Private Debt	Total Debt
January	$127.9 billion	$141.4 billion	$269.3 billion
February	$129.0 billion	$143.1 billion	$272.1 billion
March	$130.5 billion	$146.0 billion	$276.5 billion
April	$131.0 billion	$145.6 billion	$276.6 billion
May	$132.2 billion	$151.5 billion	$283.7 billion
June	$131.7 billion	$153.2 billion	$284.9 billion
July	$134.2 billion	$156.4 billion	$290.6 billion
August	$134.2 billion	$156.2 billion	$290.4 billion
September	$132.9 billion	$159.3 billion	$292.3 billion
October	$133.2 billion	$161.3 billion	$294.5 billion
November	$133.9 billion	$160.5 billion	$294.4 billion
December	$129.7 billion	$162.8 billion	$292.6 billion

^{Source: Bank Indonesia}

Most of the country’s external debt constitutes long-term debt. This is positive as Indonesia is somewhat protected against (expected) continued rupiah depreciation in the remainder of 2015 (due to looming further monetary tightening in the USA). Still, Bank Indonesia repeatedly warned that too much debt of Indonesian private companies as well as state-owned companies is unhedged and thus vulnerable to currency volatility. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.19 percent to IDR 13,116 per US dollar on Monday (18/05). Since the start of 2015, the rupiah depreciated 5.4 percent against the US dollar.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Interest Rate Policy

Tomorrow (Tuesday 19/05), Indonesia’s central bank will hold its monthly Board of Governor’s Meeting in which it will discuss, among other matters, its stance on the key interest rate (BI rate). Bank Indonesia is expected to maintain the BI rate at 7.50 percent as the country’s inflation rose to 6.79 percent (y/y) in April 2015 due to higher fuel prices, while the rupiah remains weak amid bullish US dollar momentum ahead of higher US interest rates. Bank Indonesia is expected to use other measures to boost the country’s sluggish economic growth. Bank Indonesia Governor Agus Martowardojo said the central bank will issue a policy-mix that includes looser down payment requirements for consumer loans and relaxed loan-to-deposit (LTD) ratio for banks (providing room for more lending/economic activity).

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