Indonesia's Trade Balance Surplus and Foreign Exchange Reserves: The Impact of New Regulations on DHE

Arrijal Rachman, CNBC Indonesia

Friday, 28/07/2023 06:40 WIB

Photo: CNBC Indonesia/Muhammad Luthfi Rahman

Jakarta, CNBC Indonesia – Indonesia has enjoyed more than 3 years of trade balance surplus or to be precise for 38 consecutive months. According to the latest data, a surplus occurred in June 2023 of US$ 3.45 billion, up from the previous month’s US$ 440 million.

However, the high export results compared to imports have not been able to thicken the coffers of Indonesia’s foreign exchange reserves. This is because the money from the exports does not reside in the Indonesian financial system, but travels and parks abroad.

Bank Indonesia noted that foreign exchange reserves as of June 2023 amounted to US$ 137.54 billion, down from the previous month’s US$ 139.28 billion. Usually, when the trade balance continues to print a surplus, the current account is also a surplus so that foreign exchange reserves increase.

This is what happened in other countries. Quoting the records of the CNBC Indonesia research team, China is one of the countries that has consistently scored a trade balance surplus since the 1990s and now the bamboo curtain country is the country with the world’s largest foreign exchange reserves.

As of April 2023, the value reached US$ 3.20 trillion or 23 times the total foreign exchange reserves of Indonesia as of June 2023. This condition has also occurred for other countries, such as Japan to Thailand, which have also revised their free foreign exchange regime regulations.

In 2006, Thailand required DHE to be repatriated to baht, with a limit of US$ 200,000. In March 2021, Thailand’s central bank raised the limit on DHE that does not have to be repatriated to US$ 1 million. Above US$ 1 million, DHE must be repatriated to baht.

Repatriation is carried out no later than 360 days after receiving payment. DHE is also required to settle and can only be transacted again after 360 days. With this policy, the supply of foreign currency became quite large. This is reflected in Thailand’s foreign exchange reserves which were valued at US$ 216.6 billion in December 2022 from January 2006 of only US$ 53.22 billion.

The Indonesian government has actually begun to realize the problem of a surplus which does not add to foreign exchange reserves because the money from exports does not park domestically. Hence, the foreign exchange provisions were changed into Government Regulation (PP) Number 36 of 2023 which revised PP Number 1 of 2019.

The Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Panjaitan said, through Government Regulation (PP) Number 36 of 2023, Indonesia’s foreign reserves could grow to US$ 300 billion. Luhut’s estimate will more than double the foreign reserves position as of June 2023 to US$ 137.5 billion.

He explained, this was because the PP had mandated that DHE SDAs kept by exporters was at least US$ 250 thousand in the domestic financial system for a minimum period of three months from placement in a special SDA account.

“We asked to stay for 3 months, given interest by Bank Indonesia so that thus our foreign exchange reserves, I think, will be more than US$ 300 billion in the near future this year,” Luhut said at Halim Perdanakusuma Airport, quoted Friday (28/7/2023) ).

The PP regarding DHE from the exploitation, management and/or processing of natural resources comes into effect on August 1, 2023. Luhut believes that the PP will be able to make the dollars of natural resource product exporters circulate longer in the domestic financial system, rather than so far running into overseas.

“DHE is very important, DHE can be transferred to live in Indonesia from the export of these mines up to US$ 9 billion per year,” said Luhut.

Luhut explained that the regulation does not target entrepreneurs whose export value is less than US$250,000 or its equivalent. However, if the value is above US$ 250,000 then the funds must stay in Indonesia for 3 months. So that in this way the country’s foreign exchange reserves can increase.

“We have discussed it with the entrepreneurs, but before that those who were afraid that US$250,000 and below were imposed, (even though) were not imposed. Because like the fisheries sector, they are not charged because their margins are thin, so we don’t want them to get hit either.” Luhut said.

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