INDONESIA’S plan to force commodity firms to keep export earnings onshore for a year will create new challenges for companies that are already dealing with rising regulatory uncertainty.
The policy tightens an existing requirement that resource firms keep 30 per cent of earnings onshore for at least three months. The move is aimed at bolstering Indonesia’s foreign-exchange reserves and supporting the rupiah, but exporters have complained it will impact cash flow and force them to take out larger loans to finance their working expenses.
The move, due to take effect Mar 1, comes as Indonesia’s huge natural resources sector contemplates other sudden shifts in policy under recently inaugurated President Prabowo Subianto. The country is also weighing cuts to nickel mining quotas in order to boost prices, Bloomberg reported last year, potentially worsening shortages that hit the smelting sector in 2024.
Indonesia’s biggest copper mine, a joint venture between Freeport McMoran and the government, is currently unable to ship its product overseas as ministers prevaricate over temporarily relaxing a ban on exports.
“A sudden move could shock businesses and impact their cash flow,” said David Sumual, chief economist at Bank Central Asia. “If they are unprepared, it will be challenging.”
While the new government had earlier signalled its intent to extend the foreign exchange lockup, the scale of the changes has taken exporters by surprise.
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Exporters can use their FX proceeds to pay state levies, taxes, and dividends, according to a statement from the presidential palace citing the Coordinating Minister for Economic Affairs, Airlangga Hartarto. They are also encouraged to convert their proceeds into rupiah and use a specific deposit instrument as back-to-back collateral for rupiah loans from banks or Indonesia Exim bank.
The measure applies to all of Indonesia’s major commodities, including coal, palm oil and nickel, which make up the bulk of the country’s non-oil and gas exports. Shipments of commodities including mining, agricultural, forestry and fisheries products reached almost US$250 billion last year, or 94 per cent of Indonesia’s total exports.
The stricter policy on export earnings is intended to further bolster Indonesia’s foreign exchange reserves as the local currency comes under pressure from a resurgent US dollar as US President Donald Trump begins his second term. The US currency has rallied more than 8 per cent against Indonesia’s rupiah since the end of September, despite multiple market interventions by the central bank.
Last week Bank Indonesia cut interest rates despite 38 economists unanimously predicting no change, causing the rupiah to fall and the central bank to step into the market. BLOOMBERG
