Indonesia Mandates Exporters to Retain Foreign Earnings, Boosting Central Bank Reserves

Indonesia has implemented a regulation requiring natural resource exporters to maintain their overseas earnings within the country for a period of one year. The move aims to bolster the central bank's foreign exchange reserves by an estimated $80 billion and stabilize the rupiah, which has been under pressure in recent months.

The new rules apply to exporters across the mining, plantation, forestry, and fisheries sectors, which accounted for 63% of Indonesia's total exports in 2022. Previously, companies in these sectors were required to keep only 30% of their export proceeds onshore for a minimum of three months.

President Prabowo Subianto stated that the regulation seeks to optimize natural resource revenues for the nation's development, domestic monetary circulation, and strengthening of the exchange rate. He emphasized that funds have historically been deposited in banks abroad.

While oil and gas exporters are exempt from the regulation, exporters will be permitted to use their foreign earnings for dividend payments, taxes, loan repayments, and procurement of raw materials and capital goods that are not readily available locally.

The regulation is part of Indonesia's broader efforts to support the rupiah, which has faced headwinds from global trade tensions, slowing economic growth, and Prabowo's significant spending plans. The move is anticipated to boost domestic financing, contribute to rupiah stability, and enhance the resilience of the financial system.

Economists have called for further details on the technical aspects of the regulations to fully assess their impact. Despite the requirement for exporters to keep earnings onshore, the allowance for foreign exchange usage for certain payments and operating costs may limit the effectiveness of the measure.

The implementation of the regulation coincides with the release of monthly trade data showing a decline in imports and a moderate increase in exports. The trend suggests weaker consumption and below-capacity economic activity in Indonesia.