In anticipation of a potential deterioration in the ongoing European crisis, specifically in light of the Greek elections scheduled for 17th June 2012, Bank Indonesia continues to monitor and prepare necessary anticipatory measures. “We will boost the supply of foreign exchange on the market according to the requirement in order to stabilise the rupiah exchange rate,” remarked the Governor of Bank Indonesia (BI), Darmin Nasution.

In addition to market intervention, Bank Indonesia will also redouble existing rupiah stabilization measures, including the purchase of SBN on the secondary market, the introduction of foreign currency term deposits and the development of other domestic foreign exchange instruments.

“Bank Indonesia has determined that the direct impact of the crisis in Europe on the domestic corporate and banking sectors remains relatively limited,” explained the Governor. The position of private foreign debt in Indonesia from Europe as of April 2012 stands at USD 21.6 billion, stemming from the Netherlands (57.3%), England (10.7%), Germany (6.4%) and France (2.5%). In addition, exposure to debt from PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) is negligible. Likewise, domestic bank exposure to Europe is also relatively limited.

The impact of a deterioration in the European crisis will initially be felt on the forex market and financial market, for which there is already evidence and with growing intensity since the beginning of May, as reflected by exchange rate depreciation and falling stock price indexes in the Asian region, including Indonesia. Consequently, Bank Indonesia boosted the supply of forex liquidity to stabilise the rupiah, while simultaneously purchasing SBN on the secondary market. Foreign exchange reserves as of 31st May 2012 reached USD 111.5 billion, equivalent to 6.2 months of imports and foreign debt repayments. “Hitherto, rupiah and foreign exchange liquidity has been maintained,” confirmed the Governor.

In addition to forex market intervention and in order boost the supply of foreign exchange domestically; Bank Indonesia also successfully held its first auction for foreign currency term deposits. Currently, a number of instruments to further the supply of foreign exchange as well as hedging instruments have been introduced. The Governor emphasised that “Bank Indonesia continues to follow up on measures to deepen the domestic foreign exchange market in order to reinforce rupiah exchange rate stability.”

Bank Indonesia also continues to strengthen policy coordination with the Government, including follow-up to the memorandum of understanding signed on 7th June 2012 in order to create and maintain financial system stability. The MoU sets forth a mechanism and action plan for each respective institution as well as stipulating the coordination measures required.

Jakarta, 15th June 2012
Office of the Governor

Dody Budi Waluyo
Executive Director