Analysts see IMF package for RI near $6 billion
Analysts see IMF package for RI near $6 billion
SINGAPORE (Reuter): Indonesia called in the International Monetary Fund (IMF) for help yesterday but analysts doubt any package would be anywhere near the size of Thailand's US$17.2 billion bailout.
"It's probably not a question of how much they will need, it's a question of how much they can get," said Christa Marti, economist for Indonesia and Thailand at UBS in Singapore.
"But we won't see a package as huge as we did in Thailand, certainly not. This is not a Thai style crisis."
Net reserves in Indonesia are not as low as in Thailand and analysts' first estimates were that any package would only be in the region of $4 billion to $6 billion.
Indonesia said it would seek assistance from international institutions including the IMF to bolster its foreign exchange reserves in the wake of currency turmoil.
Finance Minister Mar'ie Muhammad, who announced the decision after a cabinet meeting, did not say how much assistance would be sought, but that Bank Indonesia Governor J. Soedradjad Djiwandono would finalize the details.
The IMF gave Thailand roughly five times their quota. Quotas are the amount a member state pays into the IMF and determine both how much a country can borrow and its voting rights.
Indonesia's quota is roughly one billion Special Drawing Rights (SDR) which at today's rate is around $1.4 billion. One SDR is currently worth $1.3681.
Analysts said usually a standby facility is a maximum of 300 percent of the quota and that points to a package of around $4 billion.
The Asian Development Bank (ADB) and World Bank may also provide some liquidity as well and that could bump it up to $6 billion.
Analysts said all Indonesia needs is dollar liquidity to bolster its roughly $20 billion of reserves to allow domestic corporates to hedge without pushing the rupiah down sharply.
There is around $38 billion of short-term debt in Indonesia but this is private debt and not government debt. If it were government debt it would have to be financed absolutely through reserves.
However, a lot of banks have been calling in their loans and this is why Indonesian corporates have been exchanging their rupiah for dollars in order to pay back loans.
This is what has caused massive downward pressure on the rupiah recently and a top-up in reserves would give the central bank much needed dollars.
This would allow the corporates, providing they have enough rupiah, to obtain dollars without causing a huge shortage in the banking system. Acute shortage of dollars coupled with strong demand would push the U.S. currency up even further and keep the rupiah under pressure.
In Thailand's case the government guaranteed banking sector short-term debt which effectively turned it into sovereign debt, which in turn needed to be covered by reserves.
As the debt in Indonesia is being left in the private sector a massive boost to reserves is simply not required.
The World Bank said any assistance would aim at restoring confidence rather than just providing financial help.
"I say it's a financial package but its probably more important in delivering a message of confidence than it is in actually providing financing," said Dennis de Tray, Chief Representative of the World Bank in Indonesia. "The real issue is to ease liquidity into the system to allow people to hedge without pushing the rupiah out of line," said Chris Tinker, Regional Head of Economics and Debt Research at ING Barings in Hong Kong. "They probably don't need much more than around $4.0 billion."
On top of this it will also enable the IMF to provide some expertise on how to solve the economic problems which undoubtedly exist in Indonesia, analysts said.
"Apart from any financial help it will mean the IMF will be able to inject more effective rationalization on the financial side," Tinker added.