Indonesia’s Commodity Exporters Face Onshore Proceeds Mandate

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In a bold move to strengthen its foreign exchange reserves and stabilize the local currency, Indonesia has announced that natural resource exporters will be required to retain all export proceeds onshore for at least one year. This new regulation, effective from March 1, 2025, aims to inject substantial liquidity into the domestic financial system while addressing concerns about the country’s economic reliance on commodity exports.

Impact on dollar supply and tax dynamics

Under the new rules, all resource exporters—handling commodities like coal, palm oil, and nickel products—must retain their proceeds domestically if their shipping documents are worth at least US$250,000. This marks a significant shift from the current requirement, which mandates retaining only 30 percent of export proceeds for three months.

The initiative is expected to bolster Indonesia’s foreign exchange reserves by an estimated $90 billion annually, up from the US$155.7 billion recorded at the end of December 2024. By increasing the availability of U.S. dollars within the domestic market, the policy aims to curb the rupiah’s volatility without heavy central bank intervention. Minister Airlangga Hartarto emphasized that converting export proceeds into rupiah could further stabilize the currency, which recently hit its weakest level against the dollar since July 2024.

To mitigate the financial impact on exporters, the central bank has introduced attractive term deposit instruments with competitive returns. Moreover, capital gains from these deposits will not be taxed under the new regulation, reducing the financial burden on businesses.

Indonesia’s economy: Strengthened by commodities, shaped by challenges

Indonesia’s economic landscape is intrinsically tied to its vast natural resource reserves, making it a significant player in global commodity markets. Resources such as coal, palm oil, and nickel not only generate substantial export revenues but also anchor the country’s fiscal and trade stability. In 2024, coal alone contributed approximately US$50 billion to Indonesia’s export earnings, with major markets including China, India, and Japan.

However, this dependency also exposes Indonesia to global market fluctuations. Commodity price volatility, coupled with external shocks, can strain the country’s financial system and currency stability. The newly introduced onshore retention policy is a strategic response to these challenges. By requiring exporters to hold proceeds domestically, the government aims to insulate the economy from external pressures, increase dollar liquidity, and foster a stronger rupiah.

This policy underscores the delicate balance Indonesia must maintain: leveraging its natural resources for economic growth while addressing the vulnerabilities inherent in commodity reliance. With effective execution, the regulation could signal a transformative step toward a more resilient and self-reliant economic framework.

Conclusion: Balancing stability and growth

Indonesia’s decision to mandate full onshore retention of export proceeds underscores its commitment to strengthening economic stability amid global uncertainties. While the policy promises to boost reserves and reduce currency volatility, its success hinges on effective implementation and cooperation between the government, central bank, and exporters. With attractive financial instruments and tax incentives in place, Indonesia may achieve the desired balance between economic resilience and continued growth in its resource-driven economy.

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