1-8-2023 (JAKARTA) Indonesia’s implementation of new regulations requiring natural resource exporters to retain a portion of their proceeds onshore is expected to inject up to $9 billion per month into the foreign exchange supply and bolster the rupiah exchange rate, as stated by senior officials on Tuesday.
The rule, effective from August 1, mandates that exporters of natural resources must keep 30 percent of export shipment proceeds worth at least $250,000 within the domestic financial system for a period of three months.
While the regulation has faced criticism from exporters citing potential disruptions to cash flow, financial authorities stand firm on its benefits, aiming to enhance domestic FX liquidity amidst the backdrop of U.S. monetary tightening.
Bank Indonesia Governor Perry Warjiyo emphasized that the extent of retained foreign exchange in the domestic financial system depends on exporters’ compliance.
The central bank estimates that if 90 percent of resource exporters adhere to the rules, an additional $9.2 billion in U.S. dollar supply could be generated monthly by December. However, if only half of the exporters comply, the figure would decrease to $5 billion.
“We’re optimistic there will be around $8 billion to $9 billion per month,” Warjiyo stated during a news conference.
Finance Minister Sri Mulyani Indrawati also affirmed that the new rules would contribute to the strengthening of the rupiah exchange rate. Although the rupiah has shown resilience this year, registering a nearly 3 percent gain against the U.S. dollar, it remains sensitive to investors’ risk appetite.
Mulyani expressed confidence that the rupiah will continue to appreciate, particularly given the easing of global financial market uncertainties.
“We will observe the export retention rules in the next six months and we will continue to strive to achieve our goal to increase FX reserves from our own exports without violating regional and global rules,” she asserted.
Indonesia, as a major exporter of thermal coal, palm oil, nickel, tin, rubber, coffee, and other commodities, is poised to benefit from these new regulations in managing its foreign exchange supply and bolstering its economy.
