Tightening of Export Forex Rules Could Boost Reserves but Requires Exporter Confidence

Professor Rahma Gafmi of Airlangga University’s Economics Department said that tightening rules on foreign exchange earnings from natural resources exports (DHE SDA) could significantly boost Indonesia’s foreign exchange reserves as more foreign currency would be retained within the domestic financial system. However, she warned that the policy’s effectiveness depends on the government and national banks maintaining exporter confidence through competitive incentives, ensuring foreign exchange remains within the country without disrupting business operations or export performance. According to Rahma, the tightened DHE retention policy set for 2026 is not a government revenue source like taxes, but a tool to strengthen foreign exchange reserves within the domestic financial system. “Quantitatively, this policy could significantly boost foreign exchange reserves, but its effectiveness depends on the yield spread and exporter confidence,” she told Media Indonesia on Monday (1 June). She explained the policy could effectively stabilise the rupiah in the short term, with increased foreign currency supply and liquidity in the domestic market helping to curb pressure on the currency and maintain financial market stability. However, Rahma cautioned the policy cannot be sustained long-term without adequate incentives. Prolonged implementation would increase business burdens, impacting investment and real sector growth. “This policy acts as a strong short-term remedy for rupiah stability, but if maintained too long without competitive incentives, it could become a poison for real sector growth,” she said. Rahma highlighted several risks the government must address, including potential capital flight or hidden capital outflows if domestic bank interest rates differ significantly from regional financial hubs like Singapore. Exporters might exploit loopholes via under-invoicing—reporting lower export values to reduce required domestic foreign exchange retention—or shift profits abroad by inflating service fees and royalties. She also noted that 100% DHE retention could strain exporters’ liquidity, as funds locked for 12 months cannot be used for working capital or business expansion. Many exporters also have US dollar-denominated debt obligations. “If their DHE is locked, they must buy dollars on the spot market to repay debts, which could actually pressure the rupiah. This is a policy paradox,” she explained. From 1 June 2026, the government will require strategic commodities—coal, palm oil, and iron alloys—to be reported through PT Danantara Sumberdaya Indonesia (DSI) as the sole exporter. Rahma said this policy could also have financial sector consequences. She noted that mandating deposits in state-owned banks could create interbank liquidity gaps. Private banks risk foreign currency shortages, while Himbara banks may face excess liquidity that might not be optimally channelled into quality foreign currency loans. Centralising strategic commodity transactions via DSI also poses governance challenges. “Without transparent and independent digital oversight, DSI could become a hotspot for quota manipulation and export quality verification irregularities,” she said. Rahma also warned that a single-exporter model is often viewed as an unfair trade practice by trading partners. The EU and China, for instance, could see DSI as a state monopoly distorting global market mechanisms. Digital infrastructure readiness is also crucial. Suboptimal single-window systems, including CEISA 4.0, could cause port congestion if verification is slow, leading to high demurrage costs and reduced Indonesian product competitiveness globally. “Foreign investors in mining and palm oil are highly sensitive to cash flow flexibility,” she said. Rahma said DSI transaction mandates coupled with strict DHE retention could deter new investments as firms lose control over foreign currency management. Therefore, June to August 2026 will be critical to test policy effectiveness. “We must monitor how quickly DSI processes transactions without delaying shipments. Massive delays could cause planned foreign exchange gains to vanish due to global buyers cancelling contracts,” she said. Nevertheless, Rahma sees potential positive sentiment for capital markets. The main benefit lies in increased capital flow certainty and exchange rate stability. Foreign investors, she added, typically avoid highly volatile currency markets. If Danantara demonstrates transparency and efficiency in DHE management, foreign capital inflows into Indonesia’s stock market could rise sustainably.