To save the Rupiah, exporters are asked to save more dollars at home

With the potential for conflict escalation in the Middle East, Indonesia is increasingly interested in protecting foreign exchange from its exports.

KOMPAS/AGNES THEODORA

Coordinating Minister for Economic Affairs Airlangga Hartarto and Deputy Finance Minister Suahasil Nazara gave a press statement on the current economic condition after the Iran's attack on Israel at the Coordinating Ministry for Economic Affairs office in Jakarta on Thursday (18/4/2024).

JAKARTA, KOMPAS — The escalating geopolitical tension following Iran's attack on Israel has caused financial market conditions to fluctuate, with the rupiah weakening to its lowest point in four years. In order to "save" the rupiah, the government is calling on exporters to maximize parking their foreign exchange earnings domestically.

Deputy Minister of Finance Suahasil Nazara said, by strengthening the supply of foreign exchange reserves (cadev) in the country, the rupiah should be able to be stronger in facing pressure current global financial markets. Recently, the rupiah has continued to weaken against the US dollar due to the United States' tightening monetary policy which has continued longer than expected and the escalating conflict in the Middle East.

”We urge all our foreign exchange proceeds from exports (DHE) from exporters to be brought back to Indonesia. "This is in accordance with the regulations that DHE must be stored domestically for a longer period," said Suahasil in a press conference regarding the current condition of the Indonesian economy after Iran's attack on Israel, Thursday (18/4/2024).

Also read: Weakening of IHSG Continues, Rupiah Exchange Rate Policy Awaited

In fact, the government has already mandated exporters to store the foreign exchange from their exports in the domestic financial system since August 1, 2023. This obligation is regulated in Government Regulation (PP) Number 36 of 2023 concerning DHE from the Activities of Business, Management, and/or Processing of Natural Resources (SDA).

Through the regulation, natural resource exporters such as mining, plantation, forestry, and fisheries, are required to store 30 percent of their foreign exchange in the domestic financial system for at least three months. The potential foreign exchange from the natural resource sector is estimated to reach 203 billion US dollars. With the obligation to store a minimum of 30 percent of foreign exchange domestically, the potential foreign exchange that enters the Indonesian financial system should be able to reach 60.9 billion US dollars.

KOMPAS/TOTOK WIJAYANTO

The busy loading and unloading of containers at Tanjung Priok Port, Jakarta, on Thursday (2/2/2023). The government plans to complete the revision of technical regulations regarding the placement of export proceeds in the domestic financial system. The obligation to repatriate foreign exchange will be differentiated based on the type of commodity processing and the value of the export.

Nevertheless, several parties assess that the enforcement of this regulation is not optimal enough, so the supply of foreign exchange reserves originating from DHE is not strong enough to support the exchange rate of the rupiah amidst the turbulence of the current financial market.

Suahasil hopes that, amidst the current conditions, more exporters will be willing to keep their foreign exchange earnings in the country. He stated that exporters who deposit their export earnings for a longer period of time in the form of a deposit in the domestic financial system will be given a tax incentive in the form of an exemption on their deposit interest.

With the potential for conflict escalation in the Middle East, we are increasingly concerned with protecting our DHE.

"As per the regulations, if it needs to be kept within the country, it should be kept for a longer period of time. If it is kept for a longer period, the government will provide tax incentives. Because, we export quite a lot. If the foreign exchange from exports comes back, it will strengthen Indonesia's economic resilience," said Suahasil.

Coordinating Minister for Economic Affairs Airlangga Hartarto said that foreign exchange reserves are currently still relatively strong at 136 billion US dollars. This is expected to keep the rupiah from weakening further. “We need to reduce our need for dollars. The government itself has an instrument in the form of DHE that we want to invest in the country. "So, with the tools currently available, it is actually still relatively under control," he said.

KOMPAS/PRIYOMBODO

Officers serve foreign exchange transactions at PT Valuta Artha Mas in Jakarta, Tuesday (16/4/2024). The exchange rate of the rupiah was recorded to weaken, breaking through the level of Rp 16,200 per US dollar after the 2024 Eid holiday.

In the near future, the government will invite Bank Indonesia to evaluate the compliance level of exporters in parking their foreign currency in the country. According to the plan, the performance of DHE will be evaluated in early April 2024 in accordance with the DHE evaluation cycle every three months. However, this evaluation has been postponed due to the Lebaran holiday.

"Now the momentum for the evaluation is right. With the potential for conflict escalation in the Middle East, we are increasingly concerned with protecting our DHE. "Actually, in terms of compliance, it is already 95 percent, but we are evaluating the amount of foreign exchange that has gone into a special account with the retained amount," said Secretary of the Coordinating Ministry for Economic Affairs, Susiwjono Mugiharso.

Also read: In anticipation of the weakening of the Rupiah, the business world is advised to use local currency

Calms the market

Until now, the government is still trying to calm the market and the public amidst the potential escalation of conflict in the Middle East. The worst-case scenario has been prepared, but the government does not want to be hasty and overreact. Because, there is still a possibility that the escalation of conflict can be avoided as many countries have shown restraint.

"The world leaders' statements are relatively the same, namely that they want to avoid escalation. So, of course, in terms of geopolitics, there is currently nothing relatively yet. We are still waiting for developments, but if there is nothing yet, we will also remain calm. "We don't need to respond to things that haven't happened yet," said Airlangga.

He reiterated that compared to other countries, the depreciation experienced by the rupiah is not actually that bad. This is because Indonesia's overall economic fundamentals are still strong. Credit rating agency Moody's also issued a stable Baa2 credit rating (Sovereign Credit Rating) for Indonesia on April 16, 2024, as a country that is still a worthy investment destination.

Moody's assessed that Indonesia's economic resilience remains maintained with high and stable economic growth. Moody's assessment has taken into account the current geopolitical situation following Iran's attack on Israel.

"So, if we look at global pressure on the exchange rate, Indonesia has not fallen as deeply as other countries. The stock market is also still positive. Indeed, the US dollar is currently strengthening itself because they do not want to reduce interest rates. "Here we have to maintain the confidence of domestic investors so that there is no capital outflow," he said.