An analyst at Moody’s Investor Service has recently gone on record to claim that Indonesian companies and financial firms are going to be gearing themselves up to protect against foreign currency risks this coming year, on the back of modest growth and a native currency that is depreciating against the dollar, with the US economy getting back on track.
The outlook is indeed good for Indonesia as a whole, but nonetheless, companies are wisely ensuring that the potential for a downturn doesn’t significantly harm financials. Few firms are exposed or vulnerable, and almost all will have some solid reserves in the US dollar or hedge funds.
Depreciation in the rupiah has been less than ideal for a variety of industries, particularly those that tend to receive their revenue in the native currency, but which have to spend a significant portion of their expenditure in the US dollar.
Garuda Indonesia is the country’s major flag-carrying airline, and is a part of one such industry. It posted huge losses in the first three quarters of last year, and other companies will not want to follow suit, especially given that more than 2 percent of losses were down to forex rates alone. Garuda has now arranged a major currency-swap hedging agreement in an attempt to combat and forex difficulties, and many other large companies are likely doing the same now and in the near future.
Indeed, overseas financing is very popular among South East Asian firms as it helps to offset some of the issue in forex rates. There was an 11.8 percent hike last year alone in offshore debt as companies began to safeguard themselves.
It’s not just independent firms either; the country’s own foreign exchange reserves have been on the rise, and now stand at a hefty $114.25 billion, up from $111.86 just over a month ago.
Indonesia is certainly a popular point of interest for those on the other side of this too. Day traders have expressed significant interest in the rupiah, and are likely to be watching the unfolding events with an eye on profit making.
There’s a lot of opportunity in the emerging markets, but a lot of risk too. Small time day-traders and major companies are well aware and guarding against it. If you’ve got money in the region, then you should be considering what the future might hold.