Indonesia to force exporters to keep all US dollar earnings onshore for a year amid rupiah concerns
The latest rule change is expected to help boost Indonesia’s onshore foreign currency deposits
INDONESIA’S government plans to force commodity exporters to keep their entire foreign currency-denominated earnings onshore for at least a year, underscoring concerns about recent weakness in the rupiah.
President Prabowo Subianto has approved the plan, with relevant rules to be issued soon, said Coordinating Minister for Economic Affairs Airlangga Hartarto. The latest move should boost the US dollar reserves and regulators are preparing incentives to ensure compliance, he told reporters in Jakarta on Tuesday (Jan 21), noting that exporters can still use the funds for operational expenses, taxes, and dividend payments.
The requirement is much tougher than the current obligation that resource firms keep 30 per cent of earnings onshore for at least three months, and applies to exporters in the mining, plantations, forestry and fisheries sectors with a contract value of at least US$250,000.
While officials had signalled they may require such exportersto keep funds onshore for longer, the new requirement may create additional challenges for companies as they deal with foreign currency expenses. Even the current rule has already made it difficult for companies to manage cashflows, said Indonesian Mining Association executive director Hendra Sinadia.
The policy means exporters may have to take out additional loans to cover expenses, raising working capital costs, said Indonesian Palm Oil Association chairman Eddy Martono.
“Working capital will increase for sure, even if the government promises higher interest rates,” Martono said. The association was not involved in discussing the new policy with the government, he added.
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The latest rule change is expected to help boost Indonesia’s onshore foreign currency deposits and shore up the US dollar war chest of Bank Indonesia, which earlier this month surprised markets by resuming interest rate cuts, shifting its monetary policy focus to growth from a previous focus on currency stability. The rupiah has fallen 1.4 per cent against the US dollar this month, lagging behind its emerging Asian peers.
The government’s intention behind the regulation’s revision was likely not to move the rupiah up “but to shore up ammunition for deployment if the need arises”, said Christopher Wong, an FX strategist at OCBC.
Bank Indonesia is preparing new foreign exchange instruments to encourage compliance with the policy, Hartarto said. He added that the policy could boost reserves by US$90 billion a year.
Analysts have said the currency could weaken further to as low as 16,500 against the US dollar this quarter on a stronger US dollar and the central bank’s changed policy stance towards growth. BLOOMBERG
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