Indonesia Plan to Retain Export Earnings Retention
To retain its export earnings, Indonesia plans to require natural resource exporters to work for at least a year instead of the current three months.
Under the new earnings policy, foreign exchange reserves will strengthen, the rupiah will stabilise, and economic growth will boost. The regulation is expected to take effect within a month.
The Benefits of the Export Earnings Retention Plan
Indonesia’s new regulation is expected to take effect within a month. It is expected to bring a host of benefits, including stronger foreign reserves, which will aid in the stability of the rupiah. A stable exchange rate and consistent currency supply will reduce volatility.
With a boost in domestic investment, the retained funds can be used as working capital or loan collateral. Funds can support sectors like infrastructure, driving development and job creation. Exporters will retain earnings locally, limiting offshore transfers.
Revised Cash Flow Strategies
As for exporters, they may need to consider revising their cash flow strategy. Revising the strategy will bring about the following benefits:
- Diversified revenue sources
- Increase in working capital.
- Negotiate better payment terms.
- Optimised inventory management.
- Leverage on government-backed export financing.
- Use retained earnings as working capital.
- Invest in domestic financial instruments for returns.
Under the new policy, the government will do what it can to encourage compliance among those involved. Some of the possible incentives include higher interest rates for long-term deposits, tax benefits for retaining earnings domestically, priority in export licensing, and easier access to export financing
This policy shift represents a significant step in stabilising Indonesia’s economy, though businesses will need to adapt to the extended retention period.
