Ardian Wibisono

Indonesia’s Foreign Reserves Hit Record High of $64 Billion

The country’s foreign reserves surpassed $64 billion at the end of October, their highest level ever, central bank deputy governor Hartadi A Sarwono said on Tuesday.

Foreign reserves are used to defend the rupiah, and having a higher balance increases the ability to keep the currency stable.

Hartadi said the current reserve level, up from $62.3 billion at the end of September, was mainly due to an influx from oil and gas exports, and from foreign loans to the government.

“The increase is caused by oil and gas exports, which is in line with oil price increases, and government foreign loan disbursements from the World Bank,” Hartadi said in an SMS text message to the Jakarta Globe.

However, some economists have expressed concern that inflows of “hot money” could drive  up foreign exchange rates, and warned a quick reverse was also possible.

David Sumual, an economist with PT Bank Central Asia, said having high foreign reserves would increase investor confidence in the country. However, he said that since early this year foreign reserves had increased mainly through money flowing into short-term portfolio investments such as Bank Indonesia certificates, or SBIs.

“Besides having a risk of capital reversal, hot money flowing into the country will also burden the central bank, since it has to absorb excess liquidity by issuing more SBIs, meaning it pays higher interest costs,” Sumual said.

PT Bank Danamon economist Helmi Arman also questioned where the rise in reserves came from. If it was due to the central bank’s recent efforts to stop the rupiah from strengthening too fast, he warned, it should be on the lookout for a reversal.

Hartadi acknowledged that Bank Indonesia had purchased dollars to restrain the rupiah, contributing to the higher foreign reserves.

“However, we also sold some of our reserves to stabilize the volatility. So the impact is not that significant,” he said.

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