New Regulation of Bank of Indonesia: Stabilizing the Foreign Exchange Rate Through Export Foreign Exchange
For ensuring the stability of the Foreign Exchange Rates in Indonesia, the central bank, Bank of Indonesia (“BI”), issued BI Regulation Number 24/18/PBI/2022 on the Second Amendment of BI Regulation Number 21/14/PBI/2019 regarding Export Earnings Foreign Exchange and Import Earnings Foreign Exchange (“BI Regulation 24/2022”), on 23 December 2022. BI Regulation 24/2022 is issued to further support BI’s implementation of monetary policies on exporters to strengthen the stability of rupiah exchange rate through the proceeds of export foreign exchange (Devisa Hasil Ekspor or “DHE”). The material changes in this regulation include the applicability of DHE on natural resources commodity (Devisa Hasil Ekspor Sumber Daya Alam or “DHE SDA”).
While exporters must provide the DHE SDA proceeds to the relevant Banks, it is important to note that BI Regulation 24/2022 also amends the mandatory submission of regular reports on the Foreign Exchange Flow (Lalu Lintas Devisa or “LLD”), submitted by Banks (i.e., private or state-owned banks) to BI. These amendments are provided under Regulation of Members of Board of Governors of BI No. 21/28/PADG/2019 regarding Monitoring of Banks and Foreign Exchange Traffic Customers (“PADG 24/2022”), effective since 30 December 2022.
This article discusses the development of foreign exchange regulations under BI Regulation 24/2022 and PADG 24/2022, particularly focusing on: (i) Impacts on Exporters; (ii) Impacts on Banks; and (iii) Changes in LLD Reporting. In conclusion, these amendments are made to strengthen the regulatory measures for DHE funds placement by the Exporters.
Impacts on Exporters
Under the previous Bank Indonesia Regulation No. 21/14/PBI/2019 regarding Export Earnings Foreign Exchange and Import Earnings Foreign Exchange ("PBI 21/2019”), an exporter of natural resources products may place funds from specific DHE SDA account to its depository based on the relevant laws and regulations (Article 19 PBI 21/2019). Please note that PBI 21/2019 does not specify the instruments to be used by exporters in placing their DHE SDA proceeds.
Since the promulgation of BI Regulation 24/2022, the placement of funds can be made in instruments other than depository including (i) term depository for conventional, open market in BI foreign exchange; and/or (ii) other instruments determined by BI (Article 19 of BI Regulation 24/2022).
Please note that the funds placed in the bank account shall not be part of third party’s funds utilized for the valuation of:
- minimum foreign currency required for a giro account;
- macroprudential intermediation ratio; and
- macroprudential intermediation ratio for Islamic banking.
(Article 19 (2) of BI Regulation 24/2022)
There are no further impacts on the Exporters aside from the placement of DHE SDA in the abovementioned instruments. It is important to note that the purpose of imposing the term depository is to attract the relevant exporters to place their funds for longer periods in Indonesia, essentially to maintain the exchange rates stability. In addition, BI is planning to provide incentives to exporters who place DHE SDA in Indonesian banks. Such incentives include tax relaxations and competitive interest rates.
Impacts on Banks
BI Regulation 24/2022 further amends that DHE SDA funds placed in instruments other than those mentioned above must be checked by the relevant Banks. The origin of such funds should be DHE SDA (Article 28 (1) of BI Regulation 24/2022). Additionally, the relevant Bank is required to provide special markings for each instrument entered for DHE SDA fund placement (Article 28 (2) of BI Regulation 24/2022).
To promote the Banks’ ease of reporting due to the implementation of DHE SDA strengthening in Indonesia, several applicable points are no longer required in submissions of LLD. In the previous Governor of BI Regulation No. 21/28/PADG/2019 on the Supervision of Foreign Exchange Traffic between Banks and Customers ("PADG 21/2019”), an LLD report should contain information on Export Transaction Details (Rincian Transaksi Ekspor or “RTE”) and List of Submissions of Supporting Documents (Laporan Penyampaian Dokumen Pendukung or “DPDP”) (Article 5 (1) of PADG 21/2019). This information is no longer required under PADG 24/2022.
BI Regulation 24/2022 is issued as part of the effort to stabilize the foreign exchange rate in Indonesia, and maintain the stability of the rupiah exchange rate. The new regulation has impacts on both exporters and banks, but it also simplifies the reporting process for banks by removing certain information required in the mandatory LLD Report.
The article above was prepared by Marshall S. Situmorang (Partner) and Audria Putri (Senior Associate).