Indosat Logs Losses on Derivative Transactions

PT Indosat Tbk books IDR653 billion in losses on its IDR2.5 trillion's worth (around US$275 million) derivative transactions, which are not hedged.
Ttransactions were made in 2004 and consisted of 17 agreement contracts with several financial institutions. The problem is those transactions are not hedged as prescribed by the accounting principle.
Some financial institutions involved in the agreement contracts are Goldman Sachs Capital Market (GSC) New York, Standard Chartered Bank (Jakarta), JP Morgan Chase Bank, Goldman Sachs International, Merrill Lynch, Barclays Capital (London), ABN AMRO Bank, and HSBC.
Derivative transaction is a high-risk transaction that it needs to be specifically regulated in the financial accounting principle.

In Indonesia, the transaction is regulated in the Financial Accounting Standard Statement (PSAK), in Europe in IFRS (International Financial Reporting Standards), and in the US in US GAAP (United States Generally Accepted Accounting Principles).

In PSAK No. 55 on Derivative Instrument and Hedging Activities Accounting, it is mentioned that derivative transaction requires formal documentation of risk management analysis and transaction effectiveness analysis if such transaction wants to be hedged.

For three years in a row (2004-2006), the independent auditor Ernst & Young has reminded the management of Indosat to improve its derivate transaction-related risk management formal policy.