The new rules are meant to close loopholes that have allowed companies to move their funds abroad despite a requirement to keep them onshore for a year, according to officials. — Bloomberg
Jakarta: Indonesia’s commodity exporters could see their cash flow strained as the government tightens control over their foreign-exchange earnings in a bid to keep more US dollars onshore and support the weakening currency.
The Indonesian Palm Oil Association has requested the Finance Ministry for a review of the planned regulatory changes, which include capping the amount of foreign exchange (forex) earnings they can convert to rupiah to just 50%.
The policy could raise loan interest costs for companies as they’ll need to borrow more from banks, the group’s chairman Eddy Martono said yesterday.
“It is clear that the new limitation – allowing only 50% to be converted into rupiah – will pose additional challenges for industry players,” said Gita Mahyarani, acting executive director at the Indonesian Coal Mining Association.
The new rules, which will be issued in the coming weeks, are meant to close loopholes that have allowed companies to move their funds abroad despite a requirement to keep them onshore for a year, according to officials.
Finance Minister Purbaya Yudhi Sadewa said Monday that the government will require many natural-resource companies to deposit their export earnings solely in state-owned banks to improve monitoring and ensure compliance.
Exporters will also be able to convert only up to half of their earnings into rupiah.
Purbaya said some companies evaded the lock-up requirements by first exchanging their proceeds into rupiah, then converting the money back into a foreign currency to transfer abroad.
“So the policy hasn’t been effective, and we need to plug this leak,” he said.
However, the changes could force exporters to adjust payment terms and rely more on alternative financing, according to Fitch Solutions’ BMI.
If costs rise or liquidity becomes constrained, the effects could ripple through the supply chain – from plantation owners to mills and refineries – weakening margins, delaying payments and eroding competitiveness in global markets, said BMI analyst Bin Hui Ong.
Bloomberg Intelligence said the planned cap on rupiah conversions is credit negative for natural-resource firms including PT Indika Energy, PT Mineral Industri Indonesia and Nickel Industries Ltd.
The changes will limit their access to domestic currency and tighten financial flexibility, though the ability to use forex balances for some expenses offers partial relief, analyst Mary Ellen Olson wrote in note.
South-East Asia’s largest economy has been trying to bolster a currency that’s hovering near its Asian Financial Crisis lows, with the central bank having to pause its easing cycle to focus on currency stability.
The rupiah has weakened 3.4% this year and underperformed Asian peers. It was little changed at 16,668 per US dollar during intraday trading yesterday.
In March, officials began requiring exporters across a wide swathe of Indonesia’s natural-resources industry – including mining, plantations, forestry and fisheries – to retain all of their overseas earnings in the country for a year. — Bloomberg
