SOE forex repatriation to up reserves by $10b: BI

SOE forex repatriation to up reserves by $10b: BI

Urip Hudiono, The Jakarta Post, Jakarta

The government's latest rupiah defense policy, which requires
state-owned enterprises (SOE) to repatriate their export
revenues, is expected to strengthen the country's foreign
exchange reserve by up to US$10 billion, Bank Indonesia (BI)
said.

Speaking during a hearing with the House of Representatives'
finance commission on Wednesday evening, BI Governor Burhanuddin
Abdullah said the central bank believed that the policy would be
able to improve the country's forex supply side, particularly as
regards the American greenback.

"The policy could bring between $8 and $10 billion into the
country per annum," he said.

The government recently issued a ruling requiring SOEs to
place their export revenues in local banks as part of its latest
effort to help strengthen the rupiah, which recently hit a two-
year low.

Other measures include arranging the dollar needs of SOEs
through appointed state banks and supplying state oil and gas
firm Pertamina's particularly large dollar requirement for oil
imports directly out of the country's foreign exchange reserves.

Higher foreign exchange reserves should instill more
confidence in the rupiah and help strengthen its footing vis-a-
vis other currencies.

Indonesia's foreign currency reserves as of June 30 stood at
$33.87 billion, down $510 million the previous week. The rupiah
also closed slightly lower on Thursday at Rp 9,795 a dollar after
rising to Rp 9,790 on the back of the government's and central
bank's support.

Burhanuddin said the government's policy would not violate
international conventions -- including Indonesia's agreement with
the International Monetary Fund (IMF) -- on forex trading.

"There are 101 other countries studied by BI that have
implemented such repatriation policies," he said. "Of the 101, 76
implement direct repatriation without currency conversion
beforehand."

After the 1997 Asian financial crisis, the IMF recommended
that Indonesia adopt a free-floating exchange rate system for its
local forex market, in which the rupiah's exchange rate is
determined solely by market supply and demand. The central bank
can still influence and stabilize the rupiah's rate through money
market operations, particularly through its SBI promissory note
auctions.

Burhanuddin said BI must still work together with the
government to provide the necessary administrative
infrastructure needed to effectively implement the policy and
encourage other export-oriented firms operating in the country to
do the same.

"The government must also push Indonesia's export performance,
to better the country's economic fundamentals," he said.

Data from the Central Statistics Agency shows that Indonesia's
exports between January and May reached $33.88 billion, producing
a surplus of $10.3 billion as imports stood at $23.57 billion.

A large portion of these export proceeds, however, have never
made their way into the country's foreign exchange reserves, but
rather remain stashed abroad, intended by exporters to ensure
smooth transactions.

To address this, BI deputy governor for monetary affairs,
Aslim Tadjuddin, said recently that the central bank had taken
measures to make local banks more attractive places for exporters
to deposit their export proceeds.

"BI, for example, has increased the interest rate on dollar
deposits in local banks from 0.65 percent to 2.75 percent over
the past two months, and asked them to improve their financial
services," he said.