Indonesia readies US$1b loan against Fed rate volatility

[JAKARTA] Indonesia received a US$1.17 billion loan commitment from the World Bank and two other lenders, seeking to diversify funding sources ahead of US interest rate rises.

The Asian Development Bank and Agence Francaise de Developpement joined in providing the funds, which could be used to bridge the budget shortfall this year, said Robert Pakpahan, director general of budget financing and risk management office at the finance ministry.

"This is a new commitment that we can draw upon whenever the need should arise," he told reporters on Thursday in Jakarta.

Indonesia is bracing for fund outflows and market volatility when the Federal Reserve begins raising rates either later this year or early next. Finance Minister Bambang Brodjonegoro said July 1 that the government would seek foreign loans rather than increase bond sales to cover the budget deficit, which it now forecasts at 2.2 per cent of gross domestic product this year, compared with an initial target of 1.9 per cent.

"This is part of their way of trying to diversify funding sources, away from the market, especially ahead of a potential pickup in global volatility," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore.

The rupiah has depreciated about 8 per cent against the dollar this year, the second-worst performance among major currencies tracked by Bloomberg in Asia. The currency is at its weakest level since the 1998 Asian financial crisis, when the country plunged into recession and political turmoil.

BLOOMBERG