Erick Prepares State-Owned Enterprises to Anticipate Global Economic and Geopolitical Impacts

Jakarta, April 18, 2024 – The Minister of State-Owned Enterprises (SOE), Erick Thohir, warns SOEs to anticipate the impacts of global economic and geopolitical turmoil. Erick cited a 3.5 percent inflation rate in the US as a reason why the Fed's move to lower the benchmark interest rate (Fed Fund Rate) would not happen shortly. 

"The geopolitical situation is also becoming more volatile with the recent escalation of conflict between Israel and Iran," said Erick in Jakarta on Wednesday (17/4/2024).

Erick mentioned that this situation has strengthened the US dollar against the rupiah and increased WTI and Brent oil prices, each of which has surpassed USD 85.7 and USD 90.5 per barrel, respectively.

"These oil prices are predicted by some economists to reach USD 100 per barrel if the conflict escalates and involves the United States," he continued.

Erick stated that these two factors have weakened the rupiah to IDR 16,000-16,300 per US dollar in the past few days. This exchange rate could even exceed IDR 16,500 if geopolitical tensions do not ease.

Erick assessed that the economic and geopolitical situations have already and will continue to impact Indonesia through Foreign Investment Outflows, which lead to the weakening of the rupiah and an increase in bond yields. Additionally, there will be an increase in the cost of importing raw materials and food due to disruptions in the supply chain.

"And it will erode Indonesia's trade balance," added Erick.

Therefore, Erick urged SOEs to take swift action to minimize global impacts by reviewing operational costs, capital expenditure, impending debts, corporate action plans, and conducting stress tests to assess the SOEs’ current situation.

Erick requested banking SOEs to proportionally manage credit exposure affected by rupiah volatility, interest rates, and oil prices. Erick mentioned that SOEs affected by imported raw materials and those with significant foreign debts (in US dollars), such as Pertamina, PLN, State-Owned Pharmaceutical Companies, and MIND ID, should optimize the purchase of US dollars in large quantities in a short period.

"And conduct sensitivity studies on principal and/or interest payments on debts in dollars that will mature soon," Erick continued.

Furthermore, Erick said that SOEs oriented toward export markets, such as Mining MIND ID and Plantation PTPN, could utilize this price increase trend to mitigate the erosion of the trade balance. Erick stated that SOEs with foreign debts or planning to issue instruments in US dollars should consider hedging options to minimize the impact of exchange rate fluctuations.

"All SOEs are expected to be vigilant and alert by monitoring the current situation, considering the possibility of an increase in interest rates in the near future," said Erick.

The President Director of PT Pertamina, Nicke Widyawati, stated that Pertamina is monitoring the latest developments and the impact of escalating geopolitics on the global energy supply chain. Nicke mentioned that the fluctuations in world oil prices would become more dynamic after the increased tensions in the Middle East.

"We will continue to enhance risk mitigation efforts to reduce the potential impacts of economic and geopolitical dynamics, including cost control, optimal crude composition selection, effective inventory management, increased production of high-yield products, and efficiency in all operational lines," said Nicke.

The President Director of PT Bank Rakyat Indonesia (BRI), Sunarso, assured that BRI would implement strict measures in future corporate action plans. Sunarso stated that BRI would prudently and proportionally manage credit exposure affected by rupiah volatility, interest rates, and oil prices.

"As per the Minister's directive, we will conduct stress tests and also prepare various scenarios for possible occurrences in the domestic economy due to the global economic and geopolitical conditions," said Sunarso.

Pertamina, as a leading company in the energy transition, is committed to supporting the Net Zero Emission 2060 target by continuously promoting programs that directly impact the Sustainable Development Goals (SDGs) achievement. All these efforts align with Environmental, Social, and Governance (ESG) implementation across all Pertamina's business lines and operations.**