(Bloomberg) -- Indonesia will require commodity exporters to keep part of their foreign currency earnings onshore for at least one year in a bid to boost foreign reserves, according to a senior minister.
That is much longer than the current requirement of three months, with a revised regulation to be issued soon, Coordinating Minister for Economic Affairs Airlangga Hartarto said on Wednesday. The government and Bank Indonesia are also preparing incentives to ensure compliance, he said.
The export earnings rule is one of the strategies of Southeast Asia’s largest economy to stabilize the rupiah. The prospect of US tariffs and fewer Federal Reserve interest-rate cuts has bolstered the dollar, dragging the rupiah 0.9% weaker so far this month.
However, the restrictions also force commodity exporters to take out bank loans to finance their costs and capital expenditures, reducing their profitability. The measures have also met pushback from investors wary this would crimp the free flow of capital in Indonesia.
Existing rules require exporters in the mining, plantations, forestry and fisheries sectors earning at least $250,000 to keep a minimum 30% of their foreign exchange proceeds onshore for at least three months. Hartarto didn’t mention changes to the other parameters.
The longer retention period should temper some pressures on the rupiah while market anxiety is building up ahead of US President-elect Donald Trump taking office, said Alan Lau, an FX strategist at Malayan Banking Bhd.
It could also boost the central bank’s dollar stash that’s already at a record high, said Oversea-Chinese Banking Corp.’s Christopher Wong. “It’s more a case of shoring up ‘ammunition’ and to help cushion against any sharp dollar move,” he said.
--With assistance from Grace Sihombing and Eddie Spence.
(Updates with market reaction and more comments from officials)
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