Jakarta, CNBC Indonesia – Former Indonesian finance minister under President Susilo Bambang Yudhoyono (SBY), Chatib Basri, said the condition of companies in Indonesia is not yet recovering and facing serious medium-term challenges.
At the beginning of October, when the depreciation of the rupee was not too deep, Chatib shared his “prediction” regarding the phenomenon of the strong dollar and its impact on Indonesian companies.
According to him, the phenomenon of the strength of the US dollar can have a negative impact on companies in the country whose debts are in the currency of Uncle Sam’s country.
Chatib said the strong dollar phenomenon was triggered by three things. The first is the growth of the US economy that slow down even better than Europe.
“People will always see relative growthSelf growthone country is relatively better than other countries, investors will prefer to put (assets) there than in other countries. This is what makes the (US dollar) exchange rate still strong, “Chatib said in a dialogue with CNBC Indonesia, quoted on Saturday (10/29/2022).
Second, not many people are aware that the United States has become a net exporter energy commodities today. If the price of energy commodities rises, the dollar will automatically rise.
Third, an interest rate hike by the Federal Reserve will attract dollars to global markets in the United States.
“So in this way we will be confronted strong dollar. If a strong dollar occurs, an effect known as the balance sheet effect will occur, ”Chatib said.
Domestic corporations with dollar-denominated debt will experience a greater burden as debt becomes expensive. When the debt burden is high, the investment share will decrease.
“If the investment share falls, it will shrink,” he said.
Chatib pointed out that most of the foreign companies in Indonesia have a commercial orientation towards the domestic market. In that case, the income of the foreign company is recorded in rupees. Meanwhile, foreign companies have to repatriate profits in US dollars.
Under dollar strength conditions, profits will decline. “I’m not interested in investors to increase their investment here or both, if he wants to keep it larger (revenue) in US dollars, the rupee has to be bigger. That means his investment position will decrease,” he said. explained.
“So the strengthening of the dollar will cause a balance sheet effect, a balance sheet effect, in which companies contract,” Chatib said.
After a few weeks, at the end of October, Chatib’s ‘prediction’ came true. Investors are pouring in from the Indonesian market and exporters are trying to secure overseas US dollar reserves that make it easier for them to continue trading when they need foreign exchange.
What is happening in this country is the phenomenon of the scarcity of the US dollar in the market which weakens the rupee. The weakening of the Garuda currency has begun to put pressure on the finances of companies in Indonesia. They typically have a lot of debt in the form of US dollars, so weakening the rupee makes the cost of paying off or restructuring the loans more expensive.
The latest is PT Kawasan Industri Jababeka Tbk (KIJA) whose long-term debt rating was downgraded by PT Fitch Ratings Indonesia to CC from B-last week. The CC rating indicates a potential risk of KIJA defaulting on its debt.
The debt rating downgrade also applies to unsecured senior bonds worth US $ 300 million due to expire on October 5, 2023. The bond rating, which is now CC from B- is backed by KIJA and issued by its subsidiary Jababeka International BV .
According to Fitch, the rating downgrade reflects growing uncertainty about KIJA’s ability to meet bond payments due in the next 12 months.
Indeed, earlier this month Jababeka had received a $ 100 million loan from Mandiri Bank worth $ 100 million. This new debt matures in five years with half-yearly installments. Management acknowledged that the purpose of the new debt is to repay maturing debts, including the $ 300 million bonds due to be settled in October 2023.
Prediction of the recession
In addition to forecasts regarding the effect of the strong dollar on companies, Chatib also expressed his views on the recession. Indonesia is believed to be able to avoid the economic recession that currently haunts developed countries, including the United States (USA), Great Britain and Europe.
Chatib said he does not see the risk of a recession for Indonesia next year.
“Not before the recession,” Chatib said. However, the Indonesian economy will be affected on the export side. Especially when commodity prices suffer a drop in price and demand.
The indications are already visible, the prices of world oil, palm oil, nickel and others have fallen. Meanwhile, coal has remained stable as European demand has increased significantly.
Therefore, Chatib believes that the Indonesian economy may still grow slightly below 5%. “This year we can grow at 5.2%, next year maybe around 4%,” she said.
The impact of global shocks on Indonesian exports, he continued, would not be great. This is because Indonesia’s export contribution to economic growth only contributes 25%, which is small compared to Singapore, which has a 200% export share for its economic growth.
As a result, the Indonesian economy will only slow down.
“This is because the share of exports in GDP is only 25%, so the effect is 25%. This is what causes the impact. slow downbut not a recession. So somehow, we need domestic demand if the global economy gets hit, “Chatib said.
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