– Bank Indonesia (BI) tightened the rules on foreign currencies debt
and other obligations for the local lender. The new provisions are amended in BI Regulation Number 21 Year 2019 which are effective starting at March 1, 2019.
BI’ head of the economic and monetary policy department Aida S. Budiman said on Thursday (01/24), the new rule cover six main regulatory points. First, the definition and scope of foreign debt and other obligations of the bank in foreign currency are extended to bank loans to non-residents in foreign currencies and Rupiah, including financing based on sharia principles.
“There are arrangements that we have not yet seated properly and we also manage risk participation,” she said at the press conference in Jakarta.
Furthermore, Budiman explained, the central bank also expanded the scope of bank liabilities
by include Risk Participation Transaction, which is a risk transfer transaction on individual credit and other facilities conducted based on the master risk participation agreement.
“This transaction does not require affiliation. But in practice it is always done with affiliates who are abroad,” she noted.
The third point, BI also perfects the mechanism and basis for consideration in giving approval or rejecting applications for bank market entry plans to adjust to the current conditions. Then, add exceptions to the components of short-term bank liabilities and the exclusion of conditions for application for market entry plans.
“Fifth is supervision by central bank and sixth is improvement of mechanisms and types of sanctions,” added by Budiman.
She hopes that this arrangement can encourage banks
to conduct external debt management and other obligations in foreign exchange. It is especially in regard to the principle of prudence as an effort to maintain macroeconomic and financial system stability.
“Improvement of these arrangements is used as a guideline for banks to submit applications for more transparent market entry plans in line with the dynamics of the economy, national banking and domestic financial markets,” he concluded.
This provision replaces PBI Number 7/1 / PBI / 2015 concerning Bank Foreign Loans that have undergone several changes, with the latest amendment by PBI Number 16/7 / PBI / 2014.
Previously Moody’s Investors Service came up with a report saying Indonesia and India are among Asia’s worst-hit Asian currencies this year. It’s no surprise that the both countries are among the worst-hit Asian currencies last year, when we look at their foreign debt exposure and the level of reserves they have to cover that.
Moody’s external vulnerability index – puts Indonesia at 51 percent and India at 74 percent. External vulnerability index is the ratio of short-term debt, maturing long-term debt and non-resident deposits over a year calculated as a proportion of reserves.
While, Finance Minister Sri Mulyani Indrawati has assured the public the government will keep the country’s debt-to-GDP ratio below 30 percent, far lower than the legal threshold set at 60 percent.
The Indonesian government’s external debt consists of bilateral and multilateral loans, export credit facilities, commercial loans, leasing and government securities owned by non-residents, issued on both foreign and domestic markets.
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