JAKARTA (TheInsiderStories) – Hours before Indian Prime Minister Narendra Modi meet Indonesia’s President Joko Widodo, Bloomberg came up with a report saying India and Indonesia are among Asia’s worst-hit Asian currencies this year.
It’s no surprise that India and Indonesia are among the worst-hit Asian currencies this year when we look at their foreign debt exposure and the level of reserves they have to cover that.
Indonesian Rupiah has touched its lowest level Rp14,200 against U.S dollar during this month while Indian Rupee ended at 67.13 in May, 7, its lowest close since Feb. 8, 2017.
It said Moody’s Investors Service’s external vulnerability index – puts Indonesia at 51 per cent and India at 74 per cent. 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.
The report added that Malaysia and the Philippines are the odd economies out with Malaysian currency ringgit gaining this year while the Philippines has a low foreign exposure but a currency which is the second worst-doer in Asia.
Finance Minister Sri Mulyani Indrawati has assured the public the government will keep the country’s debt-to-GDP ratio below 30 per cent, far lower than the legal threshold set at 60 per cent.
Indonesian government debt reached Rp3,938.7 trillion (US$281.34 billion) as of the end of 2017, up from its position of Rp3,515.4 trillion at the end of 2016. Despite this bulge, Indonesia’s public debt is still considered ‘safe’ at just 29.2 per cent of gross domestic product (GDP).
This figure certifies Indonesia as one of the world’s healthier economies in terms of debt-to-GDP (Indonesian law caps the ratio at 60 per cent of GDP). Many emerging peers as well as advanced nations – for example the United States and Japan – have much higher debt-to-GDP ratios.
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.
Government securities consist of both conventional and Islamic debt instruments; government bonds fall due after more than 12 months and Treasury Bills less than or 12 months. Government Islamic Securities consist of both long-term instruments (Ijarah Fixed Rate) and Global Sukuk.
This debt is manageable and actually quite low compared to that of other key emerging economies or even advanced economies. For example, Malaysia’s and Brazil’s public debt-to-GDP ratios stand at 56 per cent and 70 per cent, respectively. Meanwhile, the ratios of the USA and Japan stand at 105 per cent and 246 per cent, respectively.
Bank Indonesia senior deputy governor Mirza Adityaswara stated that while Indonesia’s foreign debt was still under control, the country’s deficiency in exports has resulted in the current deficit reaching historic proportions.
Indonesia has an external debt to GDP ratio of 34.5 per cent, similar to Thailand’s 33.9 per cent, he said, adding, however, that Indonesia’s external debt to current account receipts was 169.9 per cent, while Thailand and Malaysia’s were just 46.4 and 9.0 per cent, respectively.