Bank Indonesia issued Bank Indonesia Regulation No. 16/21/PBI/2014 dated 29 December 2014 on Application of Prudence Principle in Non-bank Corporate External debt Management and External Circular No. 16/24/DKEM dated 30 December 2014 on Application of Prudence Principle in Non-bank Corporate External debt Management, which is an improvement of the former Bank Indonesia Regulation No. 16/20/PBI/2014 dated 28 October 2014 on the same subject. Issuance of the regulation aims to make an alignment with the common business practice, boost infrastructure development, and make an alignment with other issued Bank Indonesia regulations.
The amount of external debt by the private tends to continuously increase, which even now has exceeded that of the government's External debt amount. The latest data in October 2014 shows that Private External Debt has reached USD161.3 billion or 54.8% of the total external debt of USD294.5 billion. Bank Indonesia also sees that the private external debt is prone to some risks, particularly currency risk, liquidity risk, and overleverage risk.
Private external debt risks grow higher because economic prospect is covered by uncertainties. Global liquidity is estimated to tighten in line with the end of the US accommodating monetary policy. At the same time, the economy of emerging markets as the major trade partners of Indonesia is predicted to slow down accompanied by low export commodity prices in the international market. This condition results in potentially increasing external debt payment liability and potentially decreasing external debt payment capacity. The regulation improvement contained in the BI Regulation and Circular includes adjustment to the coverage of components of Foreign Exchange Assets and Liabilities, provision for fulfillment of Hedging liability, and provision for fulfillment of Credit Rating liability.
In brief, the major improvement includes the following:
I. Adjustment to the coverage of components of Foreign Exchange Assets and Liabilities is among others made by considering:
i. debt to eligible Non-residents and Residents meeting certain requirements as Foreign Exchange Assets;
ii. inventory as Foreign Exchange Asset for export-oriented Corporations;
iii. trade credit as Foreign Exchange Liability.
II. Adjustment to the provision for fulfillment of Hedging Liability is among others made through:
i. determination of the threshold of negative difference between Foreign Exchange Asset and Liability which must be hedged;
ii. exemption for Hedging liability for export-oriented Corporations with financial statement in US Dollar;
iii. determination of mandatory Hedging implementation with domestic banks as of 1 January 2017.
III. Adjustment to the provision for fulfillment of Credit Rating liability is among others made by:
Source: www.bi.go.id, 02 January 2015
i. extending the validity of Credit Rating to 2 years;
ii. introducing to non-bank corporations to use parent company's credit rating for the external debt of parent companies or external debt secured by parent companies;
iii. expanding the exemption for Credit Rating liability for external debt related to infrastructure projects and external debt secured by multilateral (bilateral/multilateral) institutions.