12/09/2011 (Jakarta Post) - Bank Indonesia (BI) will require exporters and debtors to bring home funds parked overseas to Indonesia-based banks in a move that will add billions of dollars in foreign exchange liquidity and ease pressures on the rupiah.

BI spokesman Difi Johansyah said on Friday that the new regulation, expected to be launched later this month, would bring about US$31.5 billion of forex liquidity into Indonesia — $29 billion from exporters and $2.5 billion from debtors.

“We hope it will strengthen domestic forex liquidity conditions so that we’re not too dependent on short-term hot money inflows,” he told reporters at BI’s headquarters.

“We want to strengthen the foundation of our macroeconomic stability with our own export funds.”

A near zero-rate environment in slowing developed nations has shifted investor interest to emerging markets, prompting policymakers to push efforts to protect economic stability as global risks grow on a stalling US economic recovery and debt woes in Europe.

Surging capital inflows posed a greater risk for sudden reversals, as experienced by Indonesia during the 2008 crisis when forex liquidity dried up in a short period of time, Difi said. “In times of crisis, funds quickly reverse. With the new system, we expect the first buffer to be from our own currency system.”

“This, in turn, will support price stability as exchange rate stability will be ensured due to a strong forex supply,” he added. “In the financial market, the domestic forex market will be more active, increasing domestic financial deepening.”

The move might also boost tax collection as the new regulation would help Indonesia — the world’s biggest exporter of thermal coal, tin and palm oil — avoid under-invoiced practices which show differences between the actual and reported value of goods, Difi said. “We will capture funds stored at banks so that it will match with the export activities.”

Bank Mandiri chief economist Destry Damayanti said exporters — such as Bumi Resources, Adaro Energy and Astra Agro Lestari — would benefit from better domestic forex rates.

In times of crisis when forex liquidity dried up, risks might emerge for exporters to continue operations using foreign currencies that domestic banks might not be able to supply, she added.

Meanwhile, the impact on banks would be “lower forex borrowing costs due to an additional supply of liquidity,” Destry told The Jakarta Post over the telephone.

“Forex loan-to-deposit ratios have been very high, with several banks reaching more than 100 percent,” she added.

Similar rules are also applied by neighboring countries and other emerging markets with different details on implementation.

In Malaysia, for instance, export revenues must be stored at domestic banks within six months of export activities at the latest, and within one year in Thailand and India, but for the latter, forex earnings must be converted into the local currency. In the Philippines, foreign debts and not export earnings are required to be converted into the peso.

“All this will be our reference material. We have not yet decided the final rules, how the transition will be, when will it be effective, penalties and other such things,” Difi said.

BI Governor Darmin Nasution said on Friday that Indonesia’s economic development could structurally pressure the balance of payments into a declining surplus or a deficit.

Meanwhile, part of the forex earnings were not coming in, limiting the forex supply in the market compared with the high demand, he added.

“This is not only to address current conditions, but to respond to our economy’s structural long-term issues,” Darmin told reporters after a meeting with Finance Ministry officials in Jakarta.