Minister of State-Owned Enterprises (SOEs) Erick Thohir has warned the Indonesian SOEs to anticipate the impact of global economic and geopolitical turmoil, citing the US inflation at 3.5 percent as indicator that the Fed would not lower the benchmark interest rate (Fed Fund Rate) in the near future.
“The geopolitical situation is also increasingly volatile with the escalation of the conflict between Israel and Iran a few days ago,” Erick said in Jakarta on Wednesday, April 17, 2024.
He said this condition triggered the strengthening of the US dollar against the rupiah and certainly the increase in WTI and Brent oil prices, which have passed through US$85.7 and US$90.5 per barrel respectively.
“This oil price is even predicted by some economists to reach US$100 per barrel if the conflict expands and involves the United States,” Erick warned.
He said further that these two factors have weakened the rupiah to Rp 16,000-16,300 per US dollar in the past few days. This exchange rate could even reach more than Rp 16,500 if geopolitical tensions do not decrease.
Erick assessed that the economic and geopolitical situation has had and will have an impact on Indonesia through foreign outflows of investment funds that will trigger a weakening rupiah and rising bond yields. Then also the higher cost of imported raw materials and food due to supply chain disruptions.
“And it will erode Indonesia’s trade balance,” he said.
The minister asked SOEs to take quick steps in minimizing the global impact through reviewing capital expenditure operational costs, maturing debt, corporate action plans, and conducting stress tests to see the condition of SOEs in the current situation.
He further asked State-owned banks to proportionally maintain the portion of credit affected by volatility in the rupiah, interest rates, and oil prices.
Erick said SOEs affected by imported raw materials and SOEs with a large portion of foreign debt (in US dollars) such as Pertamina, PLN, pharmaceutical SOEs, and MIND ID, should optimize the purchase of large amounts of US dollars in a short time.
“They should also conduct a sensitivity study on the payment of principal and/or interest on debt in dollars that will mature in the near future,” he said.
In addition, Erick added, export-oriented SOEs such as MIND ID Mining, PTPN plantations can take advantage of this upward trend in prices to mitigate the erosion of the trade balance. Erick said SOEs that have foreign debt or plan to issue instruments in US dollars should review hedging options to minimize the impact of exchange rate fluctuations.
“All SOEs are expected to be vigilant and alert by monitoring the current situation, given the possibility of an interest rate hike in the near future,” he said.
President Director of PT Pertamina, Nicke Widyawati, said the State energy company intensely monitors the latest developments and the impact of geopolitical heat on the global energy supply chain.
She suggested that world oil fluctuations will become more dynamic after the escalation of tensions in the Middle East.
“We will continue to increase risk mitigation efforts to reduce the potential impact of the dynamic economic and geopolitical situation, including cost control, selection of optimal crude composition, effective inventory management, increasing production of high-yield products and efficiency in all operational lines,” Nicke said.
Meanwhile, President Director of PT Bank Rakyat Indonesia (BRI) Sunarso ensured that BRI would implement strict measures in its future corporate action plans. BRI, continued Sunarso, will also prudently and measuredly maintain the portion of credit affected by volatility in the rupiah, interest rates, and oil prices proportionally.
“Of course, as directed by the (SOE) Minister, we will carry out stress tests and also prepare various scenarios against the possibilities that can occur in the homeland economy due to the dynamics of global economic and geopolitical conditions,” Sunarso said.
