Economy: A substantial reduction of Indonesia’s official reserve was recorded in end of March when the reserve dropped to US$121.0 billion, lower than USD130.4 billion as of end-February 2020. The position of official reserve assets was equivalent to finance 7.2 months of imports or 7.0 months of imports and servicing government’s external debt, which is well above the international adequacy standard of three months imports. Bank Indonesia considers that the official reserve assets are ample to finance import and debt service payments as well as the need to stabilize the Rupiah exchange rate
Some major factors affecting the decline in official reserve were, inter alia, the payment of government external debt and stabilization of the rupiah exchange rate amidst extraordinary conditions due to panic in the global financial market triggered by COVID-19 pandemic. The fear has induced capital outflow and amplified exchange rate pressures on the rupiah, especially in the second and third week of March 2020. According to Bank Indonesia (BI), stabilization measures and policy mix reinforcement took by BI, as well as close coordination with the Government and the Financial Services Authority (OJK), have made market conditions gradually recovered and market mechanisms have resumed since the last week of March 2020. BI was of the views that the rupiah exchange rate is relatively adequate and fundamentally undervalued and is expected to move stably and tend to appreciate towards Rp15,000 per US dollar by the end of 2020. BI will continue to maintain reserve assets adequacy to bolster external resilience and preserve macroeconomic and financial system stability.
Fiscal: The Indonesian government is in talks with international development banks for loans totalling US$7 billion to finance its COVID-19 relief efforts. The institutions tapped include the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, Germany’s KFW and Japan International Cooperation Agency. The talks were conducted after Indonesia successfully raising the US$4.3 billion in a recent dollar bond sale to help fund its battle against the virus. AT the same time, Indonesia is pursuing to issue new debt securities in financial markets.
Indonesia has raised $4.3 billion, including the longest-dated U.S dollar bond ever issued by an Asian nation, to help the government fund its battle against coronavirus. The bond issuance attracted a lot of interest from investors at the Singapore Stock Exchange and Frankfurt Stock Exchange, being two times oversubscribed in both places with a total bid of more than $10.9 billion. Citigroup Global Market, Deutsche Bank, Goldman Sachs, Hong Kong and Shanghai Banking Corporation (HSBC) and Standard Chartered acted as joint book-runners for the deal, with local brokers Danareksa Sekuritas and Trimegah Sekuritas as co-managers. Sri Mulyani said Indonesia raised $1.65 billion from selling bonds due on Oct. 15, 2020, with a yield of 3.9 percent. The government also raised $1.65 billion from 30-year bonds due on Oct. 15, 2050, with a yield of 4.25 percent. Lastly, the government raised $1 billion from 50-year bonds maturing on April 15, 2070, with a yield of 4.5 percent. “The 50-year tenor shows investors’ confidence in economic conditions in Indonesia and our management of state finances,” Indonesia’s Finance Minister Sri Mulyani said.
Finance: The Financial System Stability Committee (KSSK) is preparing various strategies to keep Indonesian banks safe from the onslaught of the Corona Virus pandemic. However, if one day there is a liquidity problem, the Indonesian Deposit Insurance Agency (LPS) is only able to save 4 to 5 banks. Should the problem suffer by a large bank, or a systemic bank, I don’t think it is possible for LPS to have financial capacity, ” said the Chairman of LPS in a working meeting with the House of Representatives. OJK was given the power to force a merger between banks in the case of insolvency, while LPS was allowed to raise money through bond sales and borrowing from the government. The government’s “severe” scenario is for a contraction in GDP of 0.4% this year and the rupiah exchange rate plunging to 20,000 to the dollar due to the outbreak of the COVID-19 respiratory disease caused by the novel coronavirus.
LPS has grouped the banks according to their financial condition. This is also in line with the regulation of Financial Services Authority (OJK), which places banks in accordance with core capital, known as BUKU (Commercial Banks Business Activities). To obtain capital in rescuing banks, LPS has devised a strategy of conducting repurchase agreements with Bank Indonesia (BI) through the Indonesian government as a guarantor. KKSK, especially LPS and OJK, continue to design a system in such a way so that the local banks remain safe. However, both institutions are still discussing the criteria of failed banks with abnormal liquidity condition.
Industry: South Korean steelmakers, unaffected by the prospects of a pandemic-induced slump, are committing to their overseas investment plans to reinforce their global supply chains for future growth. The country’s biggest steelmaker Posco Co. would invest a total of 21.2 billion won (US$17.5 million) in its wholly owned Vietnamese subsidiary, SS VINA, over the next three years, with plans to execute 11.1 billion won this year. The investment is to rearrange the lineup toward section steel and to improve operational productivity while cutting costs. Last month, Posco entered into a joint venture deal with Yamato Group, handing over 49 percent of its SS VINA stake to the Japanese section-steel maker.
Posco is also ramping up its automotive steel plate plant in Indonesia as scheduled. It is set to break ground on the third P-IJPC factory this year at Karawang International Industrial City in West Java Province, next to its two P-IJPC units. The new plant is expected to have an annual capacity of 100,000 tons, bringing Posco’s total capacity in Indonesia to 300,000 tons. Indonesia is a strategically important market for Posco as it is a key gateway into Southeast Asia. Since 2014, it has been operating PT.Krakatau Posco, a joint venture with Indonesia’s state-run Krakatau Steel. PT. Krakatau Posco’s output reached 3.02 million tons last year, making it the biggest of Posco’s overseas outposts.