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IDR slide: Bad for the market

Following Bank Indonesia’s recent unexpected move to lower interest rates, almost all global investors we spoke with recently were concerned about weakness in the rupiah (IDR), down nearly 7% ytd, making it the worst performing currency in the region (exhibit 1).

These concerns are not unfounded particularly as Indonesia’s private external debt has reached in excess of USD160bn (exhibit 2), up 13.5% y-y, surpassing the government’s external debt of USD134bn (exhibit 3). Note that some 31% or USD50bn of these private external debts are short-term, which could cause difficulties for SMEs in servicing their debt repayments. This, coupled with high dependency for many SMEs in their procurements of USD-linked raw materials, could mean rising NPLs particularly for smaller banks going forward.

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