Jakarta – Indonesia's foreign exchange reserves fell to their lowest level in four months at the end of May, after the government serviced its external debt.

The reserves fell to $120.3 billion last month from $124.3 billion in April, the central bank said on Thursday.

The bank said the current reserves are still enough to cover 6.9 months of imports, or 6.7 months of imports and service the government's foreign debt. The international standard requires foreign reserves to be adequate for 3 months of imports.

"Bank Indonesia believes the official reserve asset position can support external sector resilience and maintain macroeconomic and financial system sustainability," Onny Widjanarko, executive director of the central bank's communication department, said in a statement.

Apart from government debt repayment, demand for foreign exchange by foreign companies to pay dividends and the Idul Fitri holiday have also put pressure on the reserves, Onny said.

Indonesia's current account has been under pressure so far this year, as an escalating trade war between the United States and China undermines demand for the archipelago's main commodities, such as coal and palm oil.

Fortunately, Southeast Asia's largest economy was still able to attract foreign investment, which flowed into the country's investment-grade assets and helped plug its current-account deficit.

President Joko "Jokowi" Widodo has rallied local businesses to come up with policy suggestions on how to overcome issues related to the ongoing trade war, as it is seen as the most urgent problem his administration will have to tackle this year.

Source: https://jakartaglobe.id/context/indonesias-foreign-reserves-drop-by-4b-after-external-debt-payment