Indonesian foreign exchange (forex) reserves are at risk of depleting as no definite solution is in sight to end the current US fiscal impasse. Indonesia, along with 14 other oil exporting countries, held US$257.7 billion in US treasury securities as of July.
According to the latest data from the US Treasury Department, Indonesia was part of the "oil exporters" category — along with Algeria, Bahrain, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Oman, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela — on its list of major foreign holders of treasury securities.
The oil exporters were the fourth-largest foreign holders after China, Japan and Caribbean Banking Centers, the data showed. The securities' value was equal to 4.6 percent of the outstanding treasury securities, which stood at $5.59 trillion at the end of July.
The possibility of a default now looms over the US as its government scrambles to increase its debt limit by Oct. 17. The limit is currently set at $16.7 trillion.
Ahmad Erani Yustika, an economist with the Institute for Development of Economics and Finance (Indef), said that with the US heading toward default, the threat of a forex reserves depletion was imminent.
Data from Bank Indonesia (BI) on forex reserves reveal that for the past five years between 70 to 80 percent of the reserves have been placed in securities — including in US treasury securities.
Securities accounted for 76.5 percent of the $93 billion reserves recorded in August. Total reserves rose to $95.67 billion in September, but no detailed data is currently available.
Ahmad said that if the US went into default, Indonesia would not be able to get some of its funds back for a certain period of time and that would surely affect the forex reserves, no matter how much it had actually put in the US treasury securities.
"Say we put around $15 billion to $20 billion. That is quite a large sum of money considering our current condition. With that amount, we can finance imports for one month," he said in a telephone interview on Tuesday.
However, even if no detailed data was available, Ahmad said that he believed BI put most of the securities-allocated funds in triple-A government securities, citing the least risk.
Germany and the US are currently two of several countries that are rated triple-A by major rating agencies, such as Fitch and Moody's. A triple-A rating is generally assigned to countries with the lowest relative risk.
Jakarta-based economist at Standard Chartered Bank Fauzi Ichsan said that global financial markets would see a crisis far worse than the global crisis in 2008 — following the bankruptcy of global financial services firm Lehman Brothers Holding Inc. — if the US treasury bonds went into default.
And as most central banks held at least half of their forex reserves in US dollars, either in US treasuries or agency bonds, they stood to lose a lot, he said.
Meanwhile, according to data compiled by Bloomberg, about $417 billion in US short-term debt comes due between Oct. 17 and Nov. 7. This month alone, $120 billion will mature on Oct. 17, $93 billion on Oct. 24 and $150 billion on the last day of the month.
Bloomberg also reported on Tuesday that central banks had discussed contingency plans for the financial markets if the US went into default during the International Monetary Fund's annual meetings in Washington DC over the weekend. It said that the initial response from the banks would likely echo their actions after the collapse of Lehman Brothers.
"At the time, they pledged that they would provide ample liquidity, ease the collateral they lent against and boosted dollar swap lines with each other to ensure supply of the currency," it said.
Despite the grim outlook in the US, BI senior deputy governor Mirza Adityaswara said in Jakarta that the central bank was certain US lawmakers would find a solution at the 11th hour.
"I think this is something that the market also believes, that a deal will be made at the last minute. So we are optimistic," he said, adding that BI now had enough forex reserves, supported by the latest swap deals.
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