Indonesia urges state-run firms to hedge forex needs

Indonesian authorities have stepped up efforts to get state-owned companies to drop their reluctance and start hedging foreign-exchange transactions to help maintain stability of the rupiah. Since last year, the government and central bank have encouraged state firms to hedge their dollar needs, but most have not as they were afraid that any losses could be seen as state losses, and put executives into legal trouble.
In mid-September, in a attempt to deepen future forex trading, Bank Indonesia (BI) introduced a set of rules including allowing early termination or unwinding of future transaction. On Thursday, the government introduced a standard operating procedure for forex hedging transactions by state enterprises and the central bank encouraged firms to hedge.
BI maintains that pushing firms to hedge forex needs is necessary not only to minimise companies' default risk in case of a currency mismatch, but also to support rupiah stability. "If the (dollar) purchase has been planned well in advance, it will not pose sudden high dollar demand and the result is more stability in the exchange rate," said BI Governor Agus Martowardojo.
The governor said 60 percent of Indonesian state companies don't hedge their dollar-buying. Authorities said they expect oil and gas company PT Pertamina and power-producer PT Perusahaan Listrik Negara (PLN) to start hedging based on the new procudures. Pertamina currently is one of the highest bidders in forex spot market as the company need dollars to pay for its oil imports. Pertamina was not available for immediate comment.
Nur Pamudji, chief executive of PLN, said the electricity company will do further study before hedging their dollar needs, but admit that rupiah depreciation means ballooning cost. The central bank said that the shallow money market is one of the reason why the rupiah exchange rate is highly volatile to market sentiment. The rupiah came under pressure in late September, and weakened about 4 percent that month. On Thursday, it traded at about 12,245 to the dollar.