Indonesia to coax exporters to convert US dollar

JAKARTA: Indonesia’s finance minister says the government aims to “persuade” exporters to keep earnings onshore and convert them into rupiah, rather than make this mandatory, amid confusion over a plan floated by another minister.

On Tuesday, Trade Minister Enggartiasto Lukita said authorities intended to make it mandatory for exporters of commodities such as palm oil, coal, oil and natural gas to keep half of their proceeds onshore for at least six months and convert them to rupiah.

The measure was intended to boost onshore dollar supply, Lukita said, because portfolio outflows had drained it at a time imports were rising, sending the rupiah to its weakest since the 1998 Asian financial crisis.

Also on Tuesday, another trade ministry official said the finance ministry or the central bank would come up with a regulation on export earnings’ conversion.

But lobby groups for exporters argue that such a measure would hurt their business.

And a Bank Indonesia deputy governor told Reuters on Tuesday the central bank had no such plan.

Asked about Lukita’s remarks, Finance Minister Sri Mulyani Indrawati told reporters “I am hoping earnings can be saved onshore and converted to rupiah.”

She said authorities had talked to some companies holding US dollars to “persuade” them to convert to rupiah, including mining companies who she said paid contractors with dollars.

Ido Hutabarat, chairman of the Indonesia Mining Association, said retaining and converting export revenue would put pressure on the cashflows of commodity exporters, especially for those needing to repay offshore debt and buy imported equipment.

Togar Sitanggang, deputy chairman of the Indonesia Palm Oil Association, said some producers might opt to reduce exports and sell as much palm oil as they could domestically.

“Rather than export, they will try hard to sell domestically, because by doing so they don’t have to deposit 50% of their revenue,” he said.

President Joko Widodo has repeatedly asked exporters to exchange their US dollar earnings, trying to appeal to nationalistic sentiment.

Indonesia has seen an ongoing debate over how to push exporters to keep earnings onshore locally, with some analysts pointing to equivalent rules in Malaysia and Thailand, though others argue that such measures would go against Indonesia’s free foreign-exchange regime.

Malaysia has required exporters to convert 75% of earnings to ringgit since 2016, while Thai exporters must keep export proceeds above a certain amount in authorised banks for 360 days. — Reuters

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