Jakarta, CNBC Indonesia – The phenomenon of the power of the US dollar o ‘strong dollar‘can have a negative impact on companies in the country whose debts are in the currency of Uncle Sam’s country.
Chatib Basri, former finance minister at the time of President Susilo Bambang Yudhoyono (SBY), reveals the phenomenon strong dollar triggered by three things. The first is the growth of the US economy that slow down even better than Europe.
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“People will always see relative growthSelf growth one country is relatively better than other countries, investors will prefer to put (assets) there than in other countries. This is what makes the (US dollar) exchange rate still strong, ”Chatib said in an interview with CNBC Indonesia on Wednesday evening (6/10/2022).
Second, not many people are aware that the United States has become a net exporter energy commodities today. If the price of energy commodities rises, the dollar will automatically rise.
Third, an interest rate hike by the Federal Reserve will attract dollars to global markets in the United States.
“So in this way we will be confronted strong dollar. Self strong dollar occurs there will be an effect called budget effect or the budgetary effect, “said Chatib.
Domestic corporations with dollar-denominated debt will experience a greater burden as debt becomes expensive. When the debt burden is high, the investment share will decrease.
“If the investment share falls, it will shrink,” he said.
For the record, Chatib pointed out that most of the foreign companies in Indonesia have a commercial orientation towards the domestic market. In that case, the income of the foreign company is recorded in rupees. Meanwhile, foreign companies have to repatriate profits in US dollars.
Under dollar strength conditions, profits will decline. “I am not interested in investors please increase their investment here or secondly, if he wants to keep it larger (revenues) in US dollars, the rupee has to be bigger. This means his investment position will decrease.” , has explained .
“So the strengthening of the dollar will have an effect balancethe balance sheet effect, in which the company is contracting, “Chatib said.
Therefore, he sees that it will be difficult for the Indonesian economy to rely on the private sector in the future due to the balance sheet effect, coupled with the rising trend in interest rates.
The private sector also appears to have read the currency risk. Citing data from Bank Indonesia (BI), the private external debt (ULN) position in July 2022 was recorded at $ 206.3 billion, down from the previous month’s $ 207.7 billion position.
On an annual basis, private external debt contracted 1.2% (y / y), deeper than the previous month’s 0.7% (y / y) contraction.
This development was caused by the contraction of the external debt of financial institutions (financial companies) and non-financial corporations (non-financial company) 2.0% (y / y) and 0.9% (y / y) mainly for net payments of securities.
By sector, the largest private external debt comes from the financial services and insurance sectors; sectors of the supply of electricity, gas, steam / hot water and cold air; manufacturing sector; and the mining and quarrying sector, with a 77.3% share of total private external debt.
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