Indonesia's New Export Retention Policy: A Boon for Reserves, Challenges for Exporters

Indonesia has implemented a new regulation requiring natural resource exporters to retain all export proceeds onshore for at least one year, effective from March 1, 2025. This policy aims to bolster the country's foreign exchange reserves and stabilize the local currency, the Indonesian Rupiah (IDR). The regulation is expected to have significant impacts on the liquidity and stability of the IDR, as well as the competitiveness of Indonesian exporters in the global market.

Strengthening Reserves and Currency Stability

The new regulation is expected to add an estimated $90 billion annually to Indonesia's foreign exchange reserves, which stood at $155.7 billion at the end of December 2024. This increase in reserves will provide a buffer against external shocks and enhance the IDR's position in the global market. By increasing the availability of U.S. dollars within the domestic market, the policy can help curb the IDR's volatility without heavy central bank intervention.

Moreover, the policy aims to convert export proceeds into rupiah, which can further stabilize the currency. In 2024, the rupiah hit its weakest level against the dollar since July 2024, and this policy can help mitigate such fluctuations. The central bank has introduced attractive term deposit instruments with competitive returns to mitigate the financial impact on exporters, further incentivizing the retention of export proceeds onshore.



Potential Challenges for Exporters

While the policy is designed to strengthen Indonesia's financial position, there is a risk that it could discourage exporters if they face difficulties accessing foreign currency or if the policy creates additional costs. The requirement to retain export proceeds onshore for a longer period may lead to temporary liquidity constraints for some exporters, as they will have less cash available for immediate reinvestment or working capital needs. Additionally, the new regulation may cause delays in repatriating export proceeds, which could affect exporters' ability to quickly access their funds for reinvestment or other purposes.



Strategies for Exporters

To mitigate the potential negative impacts of the new regulation, Indonesian exporters can employ various strategies:

1. Diversify revenue streams: Exporters can explore alternative revenue streams to reduce their dependence on a single market or product. This can help mitigate the impact of any temporary liquidity constraints or delays in repatriating export proceeds.
2. Optimize working capital management: Exporters can improve their working capital management practices to ensure they have sufficient cash on hand to meet their immediate needs. This may involve negotiating better payment terms with customers, improving inventory management, or securing additional financing.
3. Leverage tax incentives: Exporters can take advantage of the tax incentives offered by the government, such as tax deductions or rebates for businesses engaged in export-oriented activities. These incentives can help offset the financial impact of the new regulation.
4. Engage with financial institutions: Exporters can work with financial institutions to secure financing solutions that address their liquidity needs. This may involve negotiating lines of credit, factoring arrangements, or other financing options that provide exporters with the flexibility to manage their cash flow.

In conclusion, Indonesia's new export retention policy is expected to have a positive impact on the liquidity and stability of the Indonesian Rupiah, as well as the country's foreign exchange reserves. However, the policy may present challenges for Indonesian exporters, who will need to employ various strategies to mitigate potential negative impacts. By diversifying revenue streams, optimizing working capital management, leveraging tax incentives, and engaging with financial institutions, exporters can maintain their competitiveness in the global market.