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.