Indonesia Sovereign Asset Liability Management Managing FX Exposure Sovereign Debt Management Forum December 3-4, 2014 , Washington DC
Background Rationale ► Asian Crisis 1997 Indonesia was very badly hit because of large exposure to short term FX Debt. Small fx reserve not enough to service short term obligation Large exposure to short term fx borrowing especially from private sector Weak financial system without effective risk management could not prevent financial crisis ► Alarming signal about Increasing vulnerabilites to Public Balance Sheet due to higher growth in country FX borrowing especially by State Owned Enterprise. Huge need for borrowing in FX to finance the expansion Ample liquidity in global market provide easy access to borrow Lack of natural hedge or hedged position ► 2008-2009 IMF-World Bank Mission to analyze the management of Financial assets and liabilities on the balance sheet of Goverment and Bank Indonesia, gave recommendations: – Cordinating the management of FX reserve and external debt portfolio in order to reduce currency risk – Strengthening institutional role between government and BI: reducing SBI (BI Certificates) role and optimizing the use of Goverment Securities as monetary instruments. – Improving cash management and coordination between debt & cash management units within MOF. 2
Cordination FX Management Current Condition Bank Indonesia Government State Own Enterprises Fiscal policy Monetary Policy Agent development Managing fiscal (budget) Public service obligation Collect tax and non tax Monetary Operation PT Pertamina, PT PLN, PT revenue, spending, to stabilize IDR exchange Telkom financing,investment rate Financial service Bank insurance Issues goverment securities Managing FX Reserve both IDR and FX Pure Business liquidity Subsidies, Surplus govt. investment, safety Cordination with BI on on lending performance issuance plan Goverment long term BI has independency on Managing debt portfolio investment managing FX reserve Securities and loan Received on lending from IDR & FX goverment Divident,tax, royalty deposit Government agent Give onlending to SOE bond auction Issue bond and loan both IDR cash Payment State investment and FX, goverment Bank received deposit Goverment permit for FX Operated based on state borrowing finance law and treasury law Operated Based on SOE Law Operated Based on BI Law 3
2014 SALM new Study on Managing FX Exposure Objectives Scope Method ► Mapping the FX exposure ► Financial Assets & Liabilities of ► Source of Data: conditions on: Government, Bank Indonesia and 6 – LKPP (Audited Govt. Financial SOEs – Goverment., Bank Indonesia, and Statement) SOEs balance sheet. Consolidated ► Main currencies : Major and – LKBI (Audited BI Financial Statement) B/S of Govt. and BI, and Significant Currencies (USD, JPY, and – Annual Audited Financial Statement Consolidated of Neraca EUR) of 6 Non Banks – SOEs (incl. PT. Pemerintah, BI, BUMN, dan Pertamina dan PT. PLN) ► Risks : Neraca Publik (Neraca Konsolidasi) ► Converting all the FX currencies into – At this time only mapping the net fx ► Analyzing the vulnerabilities on risk exposures on balance sheet of rupiah denominated numbers FXexposures of Public B/S Government, BI, and SOEs ► Applying assumptions for detailed – ► Results of Analysis will propose: In future it will focus on analysis of breakdown of BI’s balance sheet items interest rate and refinancing risks, – Portfolio management and its risk NPV of assets & liabilities, analysis on mitigation on public fx asset & duration/maturity of asset & liabilities liabilities, analysis on cash flow of – an alternative framework for FX public fx exposures management especially for Goverment & BI B/S 4
Balance Sheets of Govt., BI, SOEs Government 2008 2013 Bank Indonesia 2008 2013 SOEs 2008 2013 net exposures 1,502 2,247 net exposures (397) (774) net exposures 127 373 Assets (135) (124) Assets (587) (1,253) Assets (54) (121) Demand Deposits in BI (93) (60) Securities (500) (973) Cash (44) (118) On-Lending - (57) FX Demand Deposits (34) (135) Short term investment (7) (2) Cash in BI (42) (7) SBN Ownership (23) (44) Other Asset (3) (1) Liabilities 1,637 2,371 Gold (22) (37) Liabilities 181 493 Bonds 906 1,661 Special Drawing Rights (0) (33) Bonds 35 180 Loans 730 710 FX Deposits (7) (31) Loans 52 120 Foreign Currencies (0) (0) Trade Payables 46 85 Liabilities 190 480 Short Term Borrowing 11 61 Banks DD 85 323 On-Lending 30 40 Govt. DD 93 60 Electricity Purchase Payable 8 7 Term Deposits - 57 Dividen to Govt. 15 0 SDR Allocations 4 37 FX Loans 7 3 Notes: 1. Nominal in trillion Rupiah, 2. Liabilities is shown by positive numbers and assets in negative ones, 3. Currencies includes all FX currencies and IDR 4. Govt.’s numbers are using LKPP 2008 -2013 (audit) Government and SOEs had larger financial liabilities The largest asset in BI’s balance sheet is the international compared to their financial assets reserves for the purpose of financing imports and debt services (from government and private sectors). The largest Bank Indonesia had larger assets than its liabilities liabilities is the Demand Deposits for national banks Most of government financial asset is on Demand Deposits The largest asset in SOEs balance sheet is in Cash and the in BI and on the liabilities side most of it are government largest liabilities are debts (bonds and loans) securities 5
Overview B/S - Government Govt.'s Gross FX Exposure 1,500 GBP 1,000 USD 356 337 358 402 482 691 JPY 500 342 276 298 302 281 277 EUR 104 81 65 55 58 71 - - (3) (3) (0) (1) (3) - (18) (27) (1) (1) (32) (103) (49) (60) (60) (32) (42) USD (500) JPY 2008 2009 2010 2011 2012 2013 Notes: 1. Nominal in trilion Rupiah, 2. Liabilities is shown by positive numbers and assets in negative ones, 3. Currencies only includes USD, JPY and EUR 4. Govt.’s numbers are using LKPP 2008 -2012 (audit) and Un-audited LKPP 2013. In recent 5 years, the gross fx exposure in USD and EUR Characteristic of B/S increased while JPY decreased. The net USD exposure in ► Assets : USD and JPY remained significant. However the net USD – mostly in form of Demand Deposits in BI & On Lending to SOEs, – mostly in fixed assets exposure increased sharply in 2013, because of :widening ► Liabilities: budget deficit which caused USD borrowing to increase – Biggest portion is in FX Debt consists of FX Loans and Securities and Rupiah depreciation against USD 6
Overview B/S – Bank Indonesia BI's Gross FX Exposure 400 200 67 34 36 78 102 147 GBP - (101) (109) (154) (180) (179) (197) (17) (19) (22) (25) (28) (33) (200) USD (352) (371) (400) (523) USD (601) (650) (600) (763) JPY (800) (1,000) EUR (1,200) 2008 2009 2010 2011 2012 2013 Notes: 1. Nominal in trilion Rupiah, 2. Liabilities is shown by positive numbers and assets in negative ones, 3. Currencies only includes USD, JPY and EUR 4. Numbers are using LKBI 2008-2013 (audit). Characteristic of B/S Fortunately on the BI side of B/S, their liabilities are much lower Assets: mostly in Securities (detailed currencies proportions than their assets ► are not clearly defined) and FX Demand Deposits Those assets which are mostly in Securities (other sovereign bonds) Liabilities: majorities in Bank Demand Deposits, Govt. increased dramatically after 2009, possibly because of the effect of ► Demand Deposits large issuance Goverment ’s FX denominated bonds (as the consequences of increased budget financing). 7
Overview B/S - SOEs SOEs’ B/S Components Notes: 1. Nominal in trilion Rupiah, 2. Liabilities is shown by positive numbers and assets in negative ones, 3. Currencies only includes USD, JPY and EUR 4. Numbers are using Financial Statements (audit) 2008-2013. Scope SOEs Liabilities ► Consists of 6 SOEs with largest assets and liabilities and also largestf x The net positive fx exposure of USD had sharply increased after the it ► exposure decreased in 2012 ► 4 SOEs are public companies, the others are PT Pertamina and PT PLN Main contributors of the increasing net fx exposure of USD were from ► ► These 6 SOEs can represent 80% of of all SOEs (140 SOEs), Pertamina’s Debt (Rp122 trillion) and Short Term Borrowing (Rp61 trillion) ► Excluding SOEs’ Banks, considering Regulations from BI for Banks to have less and also PLN’s Debt (Rp106 trillion) fx exposure in their portfolio, so we considered them to have very little net fx exposure Characteristic ► Most of SOEs assets are in form of Inventory, Receivables from Govts, Cash ► Majorities of liabilities are in Loans, On-Lending, Trade Payables, and Bonds 8
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