Bank Indonesia (BI) and the Energy and Mineral Resources Ministry are deliberating on a legal framework expected to give incentives to oil and gas companies to deposit foreign currency proceeds in domestic banks, an official says.
Some foreign companies operating in Indonesia, including oil and gas companies, continue to worry about depositing export earnings in Indonesian banks due to a lack of laws regulating management of the funds, BI deputy Governor Hartadi A. Sarwono said.
“We are currently looking for a legal framework so that the earnings of our exporters can be stored in Indonesia.
“At the moment we do not have such regulations,” Hartadi told reporters on Thursday.
The central bank implemented a policy requiring exporters to deposit funds parked overseas in Indonesia-based banks in January. In reality, however, the funds have been stored in domestic banks on a temporary basis, with exporters opting to move foreign currency proceeds to overseas banks that possess clearer regulations.
Some exporters also prefer not to report overseas transactions. For instance, the nation’s largest lender, Bank Mandiri, booked only US$8.64 billion in export transactions in the first half of 2012 while recording $26 billion in foreign exchange income transfers, Sunarso, Bank Mandiri’s director for commercial and business banking, said recently.
Unlike large-scale banks in some more-developed countries, Indonesian banks currently do not have clear laws regulating the management of funds for their clients, known as trustees, which has made Indonesian exporters reluctant to deposit their earnings in domestic banks.
“Some of our exporters have their own trustees overseas,” Hartadi said. “Those trustees cannot just park their clients’ funds in countries that do not have strong regulations. The trustees are worried about the possibility that the funds will not be able to be retrieved once they are deposited.”
Besides the absence of a legal framework, the deputy governor acknowledged that some Indonesia-based exporters preferred to deposit export earnings abroad as overseas banks had more diversified financial instruments.
“The challenge for domestic banks at the moment is how they can develop instruments to make the stored funds productive,” Hartadi said.
Economic uncertainties in the US and Europe have led investors to turn to the capital markets in emerging economies, including Indonesia.
The situation, however, has had its own downside risks, such as unexpected reversals of capital flight that have prompted shortages of liquidity in the foreign exchange market – something experienced by Indonesia during the 2008 global crisis.
Mandiri Sekuritas economist Aldian Taloputra said that encouraging Indonesian banks to diversify financial instruments as well as providing a legal framework for trustees at commercial banks would reduce the risks from unexpected capital outflows.
“If there are more incentives to stash dollars in Indonesia, then our forex supply will increase, consequently improving the stability of our rupiah,” he said on Thursday.
The rupiah advanced 0.3 percent to 9,565 per US dollar as of 4:40 p.m., prices from local banks compiled by Bloomberg showed.
The currency reached 9,604 against the greenback on Wednesday, its weakest level in three months.