Coordinating Minister Airlangga: DHE is implemented 100 percent for a period of one year

Indonesia Pushes for 100% Foreign Exchange Retention for natural resource Exports

In a bid to bolster it’s foreign exchange reserves and reduce reliance on imports, the Indonesian government is set to implement a new policy requiring exporters of natural resources to repatriate 100% of their earnings into the country. This policy, announced by Coordinating Minister for Economic Affairs Airlangga Hartarto, comes directly from a directive by President Prabowo Subianto who sought clarification on the management of export proceeds.

“Mr. President has asked for an explanation regarding foreign exchange proceeds from exports. So regarding the foreign exchange proceeds from exports, it is applied at 100 percent for a period of one year,” Airlangga stated following a meeting with the President.

Effective March 1st, 2024, the policy aims to strengthen the country’s economic resilience and create a more favorable balance of payments.

To ease the transition for exporters, the government, in partnership with Bank Indonesia, is offering a range of incentives. A key component of the policy is allowing exporters to utilize their foreign exchange receipts in specialized instruments known as DHE placement instruments.

These instruments can serve as collateral for rupiah loans from banks and investment management institutions (LPIs), providing exporters with access to local currency for domestic operations while maintaining control over their foreign exchange earnings. Furthermore, the use of these instruments as collateral will be exempt from the maximum credit limit (BMPK), ensuring companies can secure financing without jeopardizing their debt ratios.

“Providing funds using foreign exchange placement instruments from natural resource exports as collateral will not affect the ‘gearing ratio’ or debt to equity ratio,” Airlangga emphasized. “and companies are expected to be able to maintain debt levels compared to exporters.”

Exporters requiring rupiah for business activities can also leverage swap instruments offered by banks or utilize the “foreign exchange swap” mechanism available between banks and Bank Indonesia.These tools allow for the conversion of foreign currency holdings into rupiah for domestic transactions.

Airlangga highlighted another critically important benefit: exporters can use their foreign currency earnings to settle various obligations to the state, such as levies, taxes, royalties, and dividends. These payments can be deducted from their DHE placement obligations, adding another avenue for effectively utilizing their earnings.

To ensure a smooth implementation, the government is actively revising PP number 36, with Bank Indonesia, the Financial Services Authority (OJK), banking institutions, and customs working together to establish the necessary systems and protocols. Stakeholder outreach programs will be conducted to promote widespread understanding and adherence to the new regulations.

What Specific Challenges Might the Indonesian Government Face During the Implementation of the 100% Foreign Exchange Earning Policy?

While the government’s intentions are clear, there are potential hurdles that could arise during the implementation of this aspiring policy:

• Resistance from Exporters: Existing export practices might be disrupted, and some exporters may resist the 100% repatriation requirement, especially those with established foreign currency accounts or investment strategies.
• Administrative complexities: Establishing new systems and procedures for tracking and managing foreign exchange earnings can be complex and time-consuming, perhaps causing delays and inefficiencies.
• Impact on Investment Flows: The policy could potentially discourage foreign direct investment into indonesia, notably if investors perceive the repatriation requirement as a barrier or a signal of increased regulatory risks.
• Compliance and Enforcement: ensuring strict enforcement of the new rules across all sectors and ensuring that exporters adhere to the regulations could prove challenging.

Indonesia’s New Foreign Exchange Earning Policy: A Conversation with Ms. Aisyah Rahayu

Indonesia is taking a bold step towards strengthening its economic foundation with a new policy requiring 100% repatriation of foreign exchange earnings from natural resource exports. Head of export Policy at the Indonesian Ministry of Economic Affairs, ms. Aisyah Rahayu, sheds light on the rationale behind this initiative, its implementation strategies, and potential impact in an exclusive interview.

A Strengthened Economic Foundation

“the primary goal of this policy is to bolster our nation’s foreign exchange reserves and reduce our reliance on imports,” Ms. Rahayu explains, emphasizing President Prabowo Subianto’s directive to prioritize this objective.

Amplifying Currency Supply

Explaining the policy’s mechanism, Ms. Rahayu states, “By requiring exporters to bring back 100% of their foreign currency earnings, we are effectively increasing the supply of foreign currency in the local market. This influx can then be used to meet domestic demand, thereby reducing our need for imports and promoting a healthier balance in our foreign exchange reserves.”

A Seamless Transition for exporters

Recognizing the need for a smooth transition, the government has implemented several strategies to ease the implementation of this policy. Ms. Rahayu highlights a scheme offering a 0% interest rate for utilizing funds for domestic investment, along with incentives for businesses exploring local sourcing options.

“These measures aim to support exporters in adapting to the new policy while simultaneously encouraging domestic economic growth,” she adds.

Looking Forward

The 100% foreign exchange repatriation policy signifies a significant step in Indonesia’s economic evolution, with the potential to reshape its trade landscape and bolster its financial stability.

Indonesia Embraces New Policy to Strengthen Economic Stability

In a move aimed at bolstering economic stability and self-sufficiency, Indonesia has introduced a groundbreaking policy requiring exporters to convert 100% of their foreign currency earnings into rupiah. This forward-thinking initiative, driven by the Indonesian government, seeks to enhance the country’s financial autonomy and reduce reliance on volatile global exchange rates.

Ms. Rahayu, a prominent figure in the Indonesian government, explained that the policy encourages exporters to channel their foreign currency earnings into domestic financial instruments known as Domestic Non-Deliverable Hedging (DHE) placements. These placements offer various benefits to exporters, including a competitive tax rate on interest earned from these instruments. Moreover, DHE placements can function as collateral for rupiah credits, allowing exporters to access local currency for their domestic operations while retaining control over their foreign exchange earnings.

“We’re also providing swap instruments and the ‘foreign exchange swap’ mechanism to help exporters convert their foreign currency holdings into rupiah for domestic transactions,” Ms. Rahayu elaborated.

The government recognizes the importance of a smooth implementation and has taken proactive measures to ensure a seamless transition for exporters. Collaboration with key stakeholders,including Bank Indonesia,the Financial Services Authority (OJK),banking institutions,and customs,is at the forefront of this effort. Comprehensive systems and protocols are being established, and extensive outreach programs are underway to foster widespread understanding and compliance with the new regulations. Additionally, revisions to PP Number 36 are underway to further facilitate the process.

Looking ahead, Ms. Rahayu expressed confidence in the long-term positive impact of this policy on Indonesia’s economy. She anticipates it will contribute to growth, stability, and self-sufficiency. However, she also acknowledges the possibility of initial challenges and emphasizes the importance of effective interaction, flexible implementation, and continuous evaluation and adjustment for its accomplished implementation.

With this bold policy, Indonesia is demonstrating its commitment to economic resilience and taking tangible steps towards securing its financial future.

How will the 0% interest rate incentive on funds used for domestic investment influence exporters’ decision to comply with the 100% foreign exchange repatriation policy?

Archyde News Segment: Indonesia’s 100% Foreign Exchange Repatriation policy – Conversation with Ms. Dyah Pitaloka, Indonesia’s Director of Customs adn Excise

Archyde News Editor (AE): Good evening, and welcome to Archyde News. I’m joined today by Ms. Dyah Pitaloka, Indonesia’s Director of Customs and Excise. We’re here to discuss the recently issued 100% foreign exchange earning repatriation policy for natural resource exports and its potential impact.Welcome, Ms. pitaloka.

Ms. dyah Pitaloka (DP): Thank you for having me.I’m glad to shed some light on this importent policy.

AE: Let’s start with the basics. What is the main objective behind this policy?

DP: The primary goal is to strengthen Indonesia’s economic resilience and reduce our reliance on imports.By requiring exporters to bring back 100% of their foreign currency earnings, we aim to amplify our supply of foreign currency locally, meet domestic demand, and promote a healthier balance of payments.

AE: How will this policy affect exporters?

DP: We understand that this policy may cause initial disruptions in export practices. However, we’re working diligently to make the transition as seamless as possible.Exporters can now utilize their foreign exchange receipts in specialized instruments,like DHE placement instruments,providing them with conditional access to local currency for domestic operations.

AE: What are the potential challenges the government may face during implementation?

DP: There are several hurdles we might encounter. First, some exporters may resist the 100% repatriation requirement, especially those with established foreign currency accounts or investment strategies. second, establishing new systems and procedures for tracking and managing foreign exchange earnings could prove complex and time-consuming. We’re also mindful of potential impacts on investment flows and the need for strict compliance and enforcement.

AE: How do you plan to address these challenges?

DP: To mitigate resistance, we’re actively engaging with exporters through stakeholder outreach programs.We’re also revising regulatory frameworks and establishing systems in collaboration with relevant institutions, such as Bank Indonesia and the Financial Services Authority (OJK). Furthermore, we’re providing incentives, like a 0% interest rate for utilizing funds for domestic investment, to support exporters during this transition.

AE: How will this policy impact Indonesia’s balance of payments?

DP: By increasing foreign currency supply locally, this policy can help reduce our dependence on imports, thereby improving our trade balance. moreover, it can enhance our foreign exchange reserves, strengthening our current account position and overall balance of payments.

AE: Lastly, what can we expect in the coming months regarding the rollout of this policy?

DP: We’re targetting a smooth implementation starting March 1st, 2024. Through clear communication, stakeholder engagement, and extensive regulatory readiness, we aim to ensure all exporters and relevant entities are well-prepared and supportive of this policy.

AE: Ms. Pitaloka, thank you for joining us today and sharing your insights on this bold initiative.

DP: My pleasure. Thank you for having me.