Indonesia is set to introduce a significant change in its foreign exchange earnings retention policy, with local media reporting that exporters of natural resources will be required to keep their export proceeds in the domestic financial market for at least one year. This move, aimed at bolstering the country's foreign exchange reserves and stabilizing the rupiah, is expected to have a substantial impact on both the Indonesian economy and the businesses affected by the new regulation.

The current retention period for export earnings is three months, with exporters required to keep 30% of their proceeds in the domestic financial system. The proposed extension to one year is a significant increase, and it is unclear whether the requirement details will be revised. However, Chief Economic Affairs Minister Airlangga Hartarto has stated that "one year is the minimum" retention period, and the government is preparing to issue the new regulations within a month.

The potential economic benefits for Indonesia from extending DHE retention to one year are numerous. By increasing the retention period, the government can:

1. Increase Foreign Exchange Reserves: A longer retention period allows Indonesia to accumulate more foreign currency in its reserves, helping to stabilize the rupiah and reduce its volatility.
2. Stabilize the Exchange Rate: A more consistent supply of foreign currency in the domestic market can help maintain the stability of the rupiah, particularly during periods of global economic uncertainty or commodity price volatility.
3. Encourage Domestic Investment: Retaining export earnings within the domestic financial market can encourage local investment, as the funds can be used as working capital or as collateral for loans, making it easier for businesses to access financing.
4. Support Economic Growth: By keeping export earnings in the country, Indonesia can foster economic growth, as the funds can be invested in various sectors, including infrastructure, which can drive economic development and create jobs.
5. Reduce Capital Outflows: Extending DHE retention can help reduce capital outflows, as exporters will be less likely to park their earnings in offshore bank accounts. This can help maintain the stability of the rupiah and support the domestic financial system.



Exporters, however, may need to adapt their cash flow management strategies to comply with the new regulation. Some potential strategies include:

1. Adjusting Working Capital Requirements: Exporters may need to increase their working capital to accommodate the longer retention period.
2. Optimizing Inventory Management: Exporters may need to optimize their inventory management to reduce the need for immediate cash flow.
3. Accessing Export Financing: The government has indicated that it may offer easier access to export financing for exporters who comply with the extended retention policies. Exporters may take advantage of these financing options to manage their cash flow more effectively.
4. Diversifying Revenue Streams: Exporters may consider diversifying their revenue streams to reduce their dependence on a single market or product.
5. Negotiating Better Payment Terms with Customers: Exporters may negotiate better payment terms with their customers to improve their cash flow.
6. Using DHE Funds as Working Capital: The government has indicated that exporters will be able to use DHE funds as working capital. Exporters may take advantage of this opportunity to manage their cash flow more effectively.
7. Investing in Domestic Financial Instruments: Exporters may choose to invest the retained funds in domestic financial instruments, such as bonds or deposits, to generate additional income while complying with the retention requirements.



To encourage exporters to keep funds longer in the domestic market, the Indonesian government could offer several incentives. These incentives could include:

1. Premium Interest Rates for Longer DHE Placements: Exporters could be offered higher interest rates for keeping their funds in the domestic market for extended periods.
2. Larger Tax Cuts: The government could offer tax incentives or reductions for exporters who keep their funds in the domestic market for longer periods.
3. Easier Access to Export Financing: The government could provide exporters with better access to financing options, such as loans or credit facilities, if they agree to keep their funds in the domestic market for longer periods.
4. Export License Prioritization: The government could prioritize exporters who comply with extended retention policies for export licenses or other regulatory approvals.



In conclusion, Indonesia's new export earnings retention rule is set to have a significant impact on both the Indonesian economy and the businesses affected by the new regulation. By extending the retention period to one year, the government aims to increase foreign exchange reserves, stabilize the exchange rate, encourage domestic investment, support economic growth, and reduce capital outflows. Exporters will need to adapt their cash flow management strategies to comply with the new regulation, and the government could offer various incentives to encourage longer retention periods. As the new regulations are prepared for issuance within a month, all parties involved should closely monitor the developments and prepare for the potential implications of this significant policy change.