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.