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Economic recovery and the export revenue retention policy
The government's policy mandating exporters to repatriate their foreign exchange earnings needs to provide more attractive incentives and a more adequate time limit, so businesses find complying with it to be in their best interests.
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A fleet of new multipurpose vehicles ready for export are parked on April 8, 2020 at the car terminal of Tanjung Priok Port in North Jakarta. (Antara/Aditya Pradana Putra)
P
resident Joko “Jokowi” Widodo recently ordered his economics ministers to amend Government Regulation No. 1/2009 on the repatriation and retention of export earnings from natural resource commodities to the domestic financial system to increase Indonesia’s foreign reserves and help stabilize the rupiah exchange rate.
It is very important to make the link between the real economy and the financial sector. This is because the financial sector plays an intermediary role for the economy. Policies on export earnings retention have often been used by developing countries, notably those which depend largely on natural resource exports, to increase the link between exports and the depth of the financial sector, and to help maintain exchange rate stability through the conversion of export earnings into local currencies.
The commodity boom increased Indonesia’s international trade surplus to US$54.46 billion in 2022 from $35.42 billion in 2021, but the positive trade balance seemed unable to contribute significantly to Bank Indonesia’s (BI’s) foreign reserves, as exporters hesitates to bring home their export earnings due to a lack of incentives and domestic investment instruments, as well as the low interest rates for foreign exchange deposits.
In the short term, this could pose a risk to exchange rate stability, which is being hit by the issues of inflation and global monetary policy tightening. BI has increased its policy rate by 225 basis points between August 2022 and January 2023, to 5.75 percent at present, to curb capital outflows.
Currently there are two kinds of policies on incentives for and the retention of foreign exchange earnings from the exports of natural resource commodities, as stipulated in Government Regulation No.1/2009. The regulation requires companies to bring their export earnings from natural resource commodities back into the domestic financial system by placing their earnings at a special natural resource-based export earnings account at banks that conduct business in foreign currencies, and no later than the end of the third month after submitting their export customs declaration.
Companies are entitled to use the retained export earnings to pay export duties and other related levies, loans, imports, dividends of exporters, as stipulated in Article 8 of Investment Law No. 25/2007.
As regards incentives for retaining export earnings in the domestic financial system, BI reduces retained export earnings deposited at commercial banks from the compulsory minimum reserve ratio, to enable domestic banks to provide attractive interest rates to exporters. The Finance Ministry also lowers foreign exchange deposits at domestic banks from interest revenues to attract exporters to put their export earnings into the domestic financial system.
