Financial Losses from Hedging by State-Owned Enterprises Not State Loss

 
Fathan Qorib, Andin Aditya Rahman
 
A coordination meeting of several government institutions has agreed that hedging performed by state-owned enterprises that results in a financial loss will not be considered a state loss. The meeting was attended by several related government institutions, such as the Audit Board (BPK), Bank Indonesia (BI), Ministry of Finance, the National Police, the Attorney General’s Office, the Corruption Eradication Commission, and the Agency for Finance and Development Supervision.
 
The outcome of the coordination meeting was announced at a press conference in Jakarta last Thursday, represented by Treesna W. Suparyono, Head of the Financial Markets Expansion Task Force at BI.
 
Mr. Suparyono first explained that the meeting was prompted due to the disproportionally low number of hedging transactions by state-owned enterprises notwithstanding efforts by the government to maximize the operation of hedging regulations as part of efforts to reduce risks to the state.
 
Despite the protection guaranteed by BI, to date only two state-owned enterprises have been bold enough to hedge their transactions with other state-owned enterprises not acting based on fear of legal reprisals although they are now expected to follow suit.
 
“The implementation of hedging is still feared by state-owned enterprises, especially concerning the possibility of losses being considered a state losses,” said Mr. Suparyono.
 
Mr. Suparyono further elaborated that the meeting primarily focused on establishing common ground in regard to hedge transactions as risk management to offset potential losses that may occur as a result of foreign currency fluctuations in financial markets.
 
At the meeting, Mr. Suparyono continued, it was also agreed that in the event of financial losses from hedging transactions by state-owned enterprises, the financial losses will be covered by the state budget in the relevant fiscal year.
 
Mr. Suparyono also announced that a team will be established to implement the results of the meeting. This includes reviewing current prevailing laws and regulations on hedge transactions by state-owned enterprises as well as providing clear-cut elucidations on implementing regulations regarding this matter.
 
The team will also determine whether or not to incorporate the coordination meeting’s agreement into a regulatory instrument that expressly states that financial losses from hedging will not be considered as state losses.
 
On a similar note, Rizal Djalil, the newly appointed BPK Chairman, stated that the meeting is part of a process aimed at establishing a collective perception of hedge transactions for government debts and the foreign exchange obligations of state-owned enterprises, specifically on financial losses caused by fluctuations in foreign exchange values.
 
Provided that hedge transactions are carried out in a consistent and accountable manner in and accordance with prevailing laws and regulations, Mr. Djalil confirmed that the financial losses will not be deemed as state losses.
 
“The meeting also agreed that the implementation of hedging policies is expected to prevent the weakening of the Rupiah’s value against other foreign currencies related to repayments of foreign debts. However, the implementation may still cause losses from foreign exchange fluctuations even though the values are not as large as without hedging,” added Mr. Djalil.
 
The regulatory framework on hedging transactions by state-owned enterprises was broadly set out late last year under Minister of State-Owned Enterprises Regulation No. PER-09/MBU/2013on General Policies for Hedging Transactions by State-Owned Enterprises (see: ILB No. 2250).
 
Hedge transactions for specific sectors are covered by BI Regulation No. 15/8/PBI/2013on Bank Hedging Transactions (see: ILB No. 2259) for the banking sector, and Minister of Finance Regulation No. 12/PMK.08/2013on Hedging for Government Debt Management (see: ILB No. 2090) for hedge transactions of government debt.
 
(For further discussion on the correlation between financial losses of state-owned enterprises and state losses, see: ILD No. 354)
 
(hot/kc)