JAKARTA: Indonesia’s plan to require exporters to retain part of their earnings onshore should boost U.S. dollar liquidity, but bankers and businesses warn against imposing mandatory conversion of funds to rupiah, some likening it to a form of capital control.
The central bank, Bank Indonesia (BI), hopes the repatriation of funds will help support the rupiah if, as expected, U.S. interest rates continue to rise.
Policymakers in Southeast Asia’s largest economy have long been concerned about exporters’ habit of parking earnings in offshore bank accounts, even after authorities made them receive proceeds through local banks more than a decade ago.
The issue has become stark since a commodity boom drove exports to a historic high of $292 billion last year but the country saw no equivalent jump in U.S. dollar supply.
Authorities now plan to make exporters of natural resources keep about 30 per cent of earnings onshore for three months after receipt.
Under the regulation, due to be issued this month, it will be possible for the funds to move to the central bank, which will set up new term deposit instruments with attractive returns and tenors of one, three and six months.
BI Governor Perry Warjiyo said last week that details of the new rules were being discussed, including “the pros and cons of mandatory conversion to rupiah”.
The Indonesian Exporters’ Association welcomed higher investment returns. But its chairman, Benny Soetrisno, said exporters would resist mandatory rupiah conversion since it would mean “we’d be under a regime of capital control, and that would be negative for investment.”
Clients of Standard Chartered’s Indonesian unit are on the same page, also backing the new rules, especially BI’s term deposits, but not if they must sell U.S. dollars, the bank’s head of transaction banking Raymond Purnama said.
“If they buy and sell in dollars and we’re asking them to convert, they will object,” he said, adding that the most important thing was to ensure funds stayed in Indonesia.
David Sumual, Bank Central Asia’s chief economist, said market sentiment would sour if conversion was mandatory. He urged authorities to incentivise swap transactions instead.
Whether conversion will be mandatory remains unclear. Finance Minister Sri Mulyani has stressed no capital control measures would be introduced.
Some bankers say the measures will spur repatriation of offshore funds and help anchor the rupiah, though how much will flow in remains unclear.
BCA’s Sumual estimated exporters had parked at least $18 billion of earnings offshore last year.
The government expects the new measures could boost forex reserves, which topped $139 billion in January, by $40 billion to $50 billion within a year.
A key reason for exporters keeping money offshore has been the low rates that Indonesian banks have paid on dollar term-deposits. Last year it was less than 2 per cent, compared with more than 4 per cent offered by some banks in Singapore.
BI has said its term deposits will pay more than offshore rates and that banks will get a fee when they pass on exporters’ earnings.
Standard Chartered’s Purnama said the market might ask for 100 basis points above offshore rates for repatriation to be attractive.
(Additional reporting by Gayatri Suroyo; Editing by Ed Davies and Bradley Perrett)
