RAM Ratings expects mandatory domestic use of Rupiah to enhance monetary management

Published on 22 July 2015

Against the backdrop of deteriorating external sensitivities, Indonesia has seen its currency depreciate by about 7% against the USD. The Bank of Indonesia (BI) had recently imposed a regulation prohibiting the use of foreign currencies in domestic transactions in Indonesia in an effort to stabilise the Rupiah and reduce the country’s reliance on foreign currencies. “We view this move positively as the regulation paves the way for more effective monetary management going forward and is expected to moderate excessive volatility of the Rupiah in the short term,” notes Esther Lai, RAM’s Head of Sovereign Ratings. RAM Ratings today released a publication entitled Mandatory Use of the Rupiah in Domestic Transactions, which explains the impact of this new regulation.

While we acknowledge the merits of the newly imposed regulation, we maintain Indonesia’s respective global- and ASEAN-scale ratings of gBBB2(pi) and seaAA3(pi), which reflect the country’s resilient albeit weaker growth, balanced by external vulnerabilities that undermine growth. As this regulation does not apply to offshore-financing arrangements, transactions relating to Indonesia’s external debt remain unaffected. Thus, the country’s transferability and convertibility risk is still viewed as moderate, based on RAM’s criteria and methodology report titled Transferability and Convertibility Assessment, which can be accessed in the Criteria and Methodology section of RAM’s website, www.ram.com.my. A one-notch sovereign weight continues to apply to Indonesian non-sovereign entities.

In respect of RAM’s rated Indonesian corporates, we currently have ratings outstanding on the entities listed below. Given that international commercial transactions are exempt from the regulation and our understanding from interaction with the respective entities that the bulk of their transactions has consistently been conducted in Rupiah, the new policy is expected to have minimal impact on the entities. For the latest press releases and rationales on the entities, please refer to RAM’s website.

Entities	Issue	Rating
Bumitama Agri Ltd	RM2.0 billion Islamic Medium-Term Notes Sukuk Musharakah (2014/2029)	AA3/Stable
First Resources Limited	RM2.0 billion Sukuk Musharakah Islamic Medium-Term Notes Programme (2012/2022)	AA2/Stable
Golden Assets International Finance Limited	IMTN Programme of up to RM5.0 billion (2012/2027)	AA3(s) /Negative

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Media contact
Lai Sue Sein
(603) 7628 1014
suesein@ram.com.my