Indonesia's New Export Policy Entails Retaining Shipment Proceeds in Regional Financial System

As reported by senior officials, new rules requiring Indonesian natural resource exporters to keep some of their proceeds onshore could add up to $9 billion per month to the foreign exchange supply and strengthen the rupiah exchange rate.

Natural resource exporters must keep 30% of the proceeds of export shipments worth at least $250,000 in the domestic financial system for three months, according to a rule that goes into effect on Aug. 1.

Exporters have complained that the regulation will disrupt their cash flow, but financial authorities have defended the measure, which is intended to boost domestic FX liquidity in the face of US monetary tightening.

Bank Indonesia Governor Perry Warjiyo stated that the amount of retained foreign currency in the domestic financial system after the rules are implemented is determined by exporters' compliance.

The bank estimates that if 90% of resource exporters follow the rules, there will be $9.2 billion more US dollar supply per month by December. However, if only half of them do, the figure drops to $5 billion.

"We're optimistic that there will be around $8 billion to $9 billion per month," Warjiyo said at a news conference.

According to Finance Minister Sri Mulyani Indrawati, the rules will help strengthen the rupiah exchange rate.