Indonesia forex reserves at safe level, BI says

JAKARTA (JP): Bank Indonesia said on Wednesday that the country's foreign exchange reserves would remain at a safe level until the end of this year even after meeting dollar demands for the repayment of corporate overseas debt.

Bank Indonesia senior deputy governor Anwar Nasution said that forex gross reserves were estimated to increase to US$29.5 billion by the end of this year from $28.1 billion at the beginning of this month.

He said that net international reserves (NIR) were estimated to reach $18.1 billion.

"The figure meets the minimum safe level target of forex reserves as agreed with the International Monetary Fund," Anwar told the House of Representatives Commission IX on banking and state budget at a meeting.

He said that the minimum NIR level set by the IMF was $15.7 billion.

Indonesia has some $150 billion in foreign debt including around $70 billion owed by the private sector.

Demand for dollars will continue to increase as companies have to service their foreign debt or repay the debt principal. The availability of the forex is crucial to maintain domestic financial stability, including the exchange rate of the rupiah against the U.S. dollar.

Bank Indonesia said recently that private sector foreign debts due in the fourth quarter of this year were estimated to reach more than $9.2 billion.

But Bank Indonesia officials have said that the maturity of such a huge amount of debt would not necessarily cause a sharp increase in demand for dollars because the greater part of the debt was owed by subsidiaries of foreign companies which would supply the dollar needs.

Meanwhile, the rupiah fell to Rp 8,845 per dollar in late trading on Wednesday, compared to Rp 8,825 previously as state- owned banks bought dollars to repay foreign debt.

Dealers said state banks were buying dollars to repay offshore obligations maturing at the end of the year.

They also said that local companies would soon go to the market to purchase dollars to repay their foreign obligations.

Anwar attributed the increase in the forex reserves to higher oil and gas revenues and new foreign borrowings (disbursement of foreign loans) by the government.

The international oil price has increased from an average of $17.40 per barrel last year to an average $26.90 per barrel this year.

Anwar added that the increase in the forex reserves had already to taken into account the payment of the government foreign loans.

Elsewhere, Anwar said that economic growth in the fourth quarter was expected to be higher than the previous quarters, with growth throughout this year projected at 4-5 percent.

Anwar said that consumption will still be the main engine for growth this year.

"But part of the growth will also be generated by the continuing increase in investments, exports as well as the brisk economic activity at the year's end due to the Christmas, Idul Fitri and New Year festivities," Anwar said.

"Investments will continue to increase although it will not be as high as in the previous quarters, and consumption will continue to grow albeit at a slower pace," he added.

Anwar, however, said that inflation for this year was expected to reach 8 percent compared to the previous forecast of between 5-7 percent.

He said that the higher inflation was primarily due to the recent increase in domestic fuel prices by an average of 12 percent.

He said that the year-end festivities would also add to the inflationary pressure.

He said that Bank Indonesia would maintain the benchmark interest rate of the Bank Indonesia one-month SBI promissory notes at 13-14 percent to help curb inflationary pressure.

The benchmark interest rate rose to 13.72 percent at Wednesday's auction from 13.63 percent last week. (rei)