Indonesia Tries To Get Companies To Hold More Rupiah To Stem Weakness

www.oann.com | 6/2/2017 | Staff
hubbog (Posted by) Level 3
JAKARTA (Reuters) – Over the past couple of decades, Indonesian companies have developed a tried and tested strategy to cope with the periodic plunges in the rupiah: retain dollars to protect their profits.

But their behavior can add to downward pressure on the currency, exacerbating problems for policymakers in southeast Asia’s biggest economy, especially given its relatively open nature compared to neighbors with more restrictive currency regimes.

Rupiah - Asia - Currencies - Year - Level

The rupiah has been one of Asia’s worst performing currencies this year and hit its lowest level since late 2015 at one point last week after being caught up in an emerging market selloff.

Bank Indonesia (BI), the nation’s central bank, has taken various measures to try to boost rupiah use and it is once again prodding firms to sell dollars, but companies surveyed by Reuters are maintaining U.S. currency holdings and only meeting minimum hedging requirements.

Companies - Lot - Costs - Dollars - Revenue

Many companies say that with a lot of their costs in dollars and their revenue largely in rupiah they can’t risk getting caught by a slide in the local currency. They also point out that hedging can be very expensive. Vidjongtius, the president director of Indonesia’s biggest pharmaceutical company, Kalbe Farma , said that every percentage of rupiah depreciation raised its production costs by 0.35 percent.

Having “cash on hand” dollars has been a strategy for Kalbe for a long time because “hedging with a banking product is relatively more complex and sometimes hard to monitor, plus there is a cost for that,” he said.

Industry - Rate - Risks - Materials - Exports

The pharmaceutical industry is particularly exposed to exchange rate risks as its raw materials are mostly imported and it only exports a small part of its production.

New BI Governor Perry Warjiyo told a media gathering last Wednesday that forcing exporters to keep earnings onshore for longer or making companies convert dollar holdings was not currently an option...
(Excerpt) Read more at: www.oann.com
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