30 Aug 2023
If at First You Don’t Succeed! Indonesian Gov’t Makes Renewed Push to Compel Repatriation of Export Dollars in Commodities Sector
With the rupiah coming under sustained pressure in recent months, the government has launched a renewed push to compel the repatriation of commodity export earnings to Indonesia by issuing Government Regulation No. 36 of 2023 on Export Proceeds from the Exploitation, Management and/or Processing of Natural Resources (“GR 36”), which requires exporters in the mining, plantation, forestry, and fisheries sectors to repatriate 30% of their foreign currency (“forex”) -denominated earnings from export shipments valued at USD 250,000 or more, and to keep them parked within the Indonesian financial system for a minimum period of 3 months.
The new legislation entered into effect on 1 August 2023, and revokes and supersedes its antecedent instrument, Government Regulation No. 1 of 2019 (“GR 1”).
(for an ABNR update on GR 1, click here, and on its related Ministry of Finance implementing regulation, click here)
Perhaps learning from previous, less-than-successful efforts to compel exporters to repatriate export earnings, GR 1 36/2023 applies a carrot-and-stick approach, whereby compliance will be rewarded with tax incentives and streamlined licensing processes, with non-compliance punishable by administrative sanctions. Interestingly, fines may no longer be imposed for non-compliance, unlike under the previous rules.
As with GR 1, GR 36 imposes no requirement that export proceeds be converted into rupiah. However, it does introduce a new provision under which the authorities may require Export Proceeds in Special Accounts to be converted into rupiah in situations of severe economic or money-market distress. The government has stated that this provision would only be activated in the most extreme circumstances.
B. Key Changes
There are a number of important differences between GR 36 and GR 1, but perhaps the most far-reaching, as alluded to above, is that GR 36 requires exporters to now park at least 30% of their foreign currency-denominated export proceeds within the Indonesian financial system for a minimum period of 3 months. By contrast, GR 1 did not stipulate a minimum percentage or time period.
Another key difference is that GR 36 only applies to export shipments of commodities worth USD 250,000 and above, whereas GR 1 applied to all such shipments, irrespective of their value.
C. Implementing Legislation
Since the issuance of GR 36, Bank Indonesia (BI) has issued 2 implementing regulations: (i) BI Regulation No. 7 of 2023 on Foreign Exchange Export Proceeds and Import Payments (“PBI 7/2023”) and (ii) BI Board of Governors’ Regulation No. 4 of 2023 on Foreign Exchange Export Proceeds and Import Payments (“PADG 4/2023”), both of which entered into effect on 1 August 2023.
In addition, the Minister of Finance (“MOF”) has established new rules on sanctions for non-compliance with GR 36 through the issuance of MOF Regulation No. 73 of 2003 (“MOF 73”), which revokes the previous MOF regulation on sanctions, namely, MOF Regulation No. 98/PMK.04/2019. Rather surprisingly, MOF 73 removes the power of MOF to impose fines for non-compliance (previously set at 0.5 percent of the value of export proceeds not deposited in the Indonesian financial system).
It also needs to be remembered that there is a long list of sectoral regulations at the ministry/agency level that impose various obligations that have a direct or indirect bearing on the repatriation of export earnings. These include Minister of Mines and Energy Directive No. 1952/84/MEM/2018, which requires exporters of minerals and coal to use domestic letters of credit (L/Cs) and repatriate all forex-denominated export earnings to Indonesia. In addition, Minister of Trade Reg. No. 94/2018 (as amended), stipulates that exporters of a range of commodities in the minerals, coal, oil and gas, and palm-oil sectors must use domestic L/Cs. These regulations have not been revoked by GR 1 and thus remain in effect.
D. Obligation to Repatriate Foreign Currency-denominated Export Proceeds
GR 36, which only applies to exporters in the mining, plantation, forestry, and fisheries sectors, requires that the foreign currency-denominated proceeds of export shipments of commodities worth at least USD 250,000 per transaction (“Export Proceeds”) be repatriated to Indonesia and deposited in a special account (“Special Account”) at the Indonesian Export Finance Agency (currently Indonesia Eximbank / “Eximbank”), or a licensed foreign-exchange bank (“Forex Bank”) within 3 months of the filing of the relevant customs export notification (Pemberitahuan Pabean Ekspor / “PPE”).
A key difference between GR 36 and its antecedent, GR 1, is that the former now requires 30% of such Export Proceeds to remain within the Indonesian financial system for at least 3 months after original placement. (This requirement does not apply to the remaining 70%.)
Export Proceeds thus deposited may be utilized by the exporter to satisfy payment obligations arising from export duties and other levies, loans, imports, profit-sharing/dividends, and for investment purposes that come within the scope of Article 8 Law No. 25 of 2007 on Investment, as amended.
If payments are to be made via an escrow account, that account must also be opened at Eximbank or a Forex Bank.
GR 36 also encourages exporters that send shipments worth less than USD 250,000 to voluntarily repatriate at least 30% of the proceeds of such shipments to the Indonesian financial system by offering them access to the same incentives as are available for shipments worth more than USD 250,000, as further discussed in section F below.
E. Utilization of Export Proceeds
Exporters are permitted to utilize Export Proceeds deposited in the Special Account as collateral for a rupiah-denominated bank loan or credit facility from Eximbank or a Forex Bank, or for such other purpose as may be approved by BI. However, according to a Bank Indonesia representative with whom we discussed the matter, Export Proceeds deposited in a Special Account may no longer be pledged as collateral for a foreign currency-denominated offshore loan (note: this restriction only affects the minimum 30% of Export Proceeds that must be deposited within the Indonesian financial system).
Export Proceeds may also be used collateral for the rolling over of a rupiah-denominated credit facility (i.e., an extension to its maturity date), and for early repayment, provided that the new repayment deadline continues to fall within the remaining tenor of the Export Proceeds deposit instrument.
F. Incentives and Sanctions
To encourage compliance with GR 36, exporters that deposit 30% of their export earnings in a domestic Forex Bank can benefit from tax incentives and may be officially recognized as “reputable exporters”. Under MOT 17/2021, reputable exporters are entitled to streamlined business licensing processes from the Ministry of Trade, including for the issuance of electronic and automated business licenses for export activities.
Failure to comply with GR 36 exposes exporters to administrative sanctions in the form of written warnings and the suspension of export-related services.
G. Obligations on Importers
Although GR 36 applies only to exports, PBI 7/2023 also imposes an obligation on importers to report forex-denominated payments for imports to BI. Such reports must be submitted within 3 months of the filing of the official import declarations. PBI 7/2023 provides for leeway of up to 5% as between the amount of a payment and the actual value of imports. However, should a discrepancy exceed 5%, the importer must provide explanatory supporting documentation to BI.
H. ABNR Commentary
Given the fact that much of Indonesia’s commodity exports are paid for in US dollars into offshore bank accounts, it is obviously of significant importance to the country’s economic wellbeing that as many of these dollars as possible be repatriated to Indonesia. Indeed, the government has been trying for more than a decade to compel exporters to do just this, but apparently without a great deal of success.
So, the gist of GR 36 is nothing new. However, what marks it out from its antecedents is the fact that it requires export earnings of more than USD 250,000 per transaction to remain parked in the Indonesian financial system for at least 3 months, whereas the previous regulations merely required export proceeds to be repatriated, but did not say for how long (how such a glaring loophole could have come to pass is difficult to fathom, but whatever the reason, it has now been closed). While this new requirement has elicited a storm of protest from commodities exporters, the Ministry of Finance is highly unlikely to do a U-turn at this stage.
By partner Mr. Ayik C. Gunadi (firstname.lastname@example.org) and senior associate Mahatma Hadhi (email@example.com)
This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.
 Government Regulation No. 36 of 2023 on Export Proceeds from the Exploitation, Management and/or Processing of Natural Resources (Peraturan Pemerintah No. 36/2023 tentang Devisa Hasil Ekspor Dari Kegiatan Pengusahaan, Pengelolaan, dan/atau Pengolahan Sumber Daya Alam)
 Government Regulation No. 1/2019 on Export Proceeds from the Exploitation, Management and/or Processing of Natural Resources (Peraturan Pemerintah No. 1/20I9 tentang Devisa Hasil Ekspor dari Kegiatan Pengusahaan, Pengelolaan, dan/atau Pengolahan Sumbar Daya Alam)
 Peraturan Bank Indonesia No. 7/2023 tentang Devisa Hasil Ekspor dan Devisa Pembayaran Impor
 Peraturan Anggota Dewan Gubenur Nomor 4 Tahun 2023 tentang Devisa Hasil Ekspor dan Devisa Pembayaran Impor
 Minister of Finance Regulation No. 73 of 2003 on the Imposition and Revocation of Administrative Sanctions for Non-Compliance with the Provisions on Export Proceeds from the Utilization, Management and/or Processing of Natural Resources (Peraturan Menteri Keuangan No. 73/2023 tentang Pengenaan dan Pencabutan Sanksi Administratif atas Pelanggaran Ketentuan Devisa Hasil Ekspor dari Kegiatan Pengusahaan, Pengelolaan, dan/atau Pengolahan Sumber Daya AlamI)
 Minister of Finance Regulation No. 98/PMK.04/2019 on Rates for Administrative Sanctions in the Form of Fines, and Procedures for the Levying, Collection and Paying of Administrative Sanctions in the Form of Fines, for Non-Compliance with the Provisions on Export Proceeds from the Utilization, Management and/or Processing of Natural Resources (Peraturan Kemteri Keuangan Nomor 98/PMK.04/2019 tentang Tarif atas Sanksi Administratif berupa Denda dan Tata Cara Pengenaan, Pemungutan dan Penyetoran Sanksi Administratif Berupa Denda atas Pelanggaran Ketentuan Devisa Hasil Ekspor dari Kegiatan Pengusahaan, Pengelolaan dan/atau Pengolahan Sumber Daya Alam)
 Minister of Mines & Energy Directive No. 1952K/84/MEM/2018 on the Use of the Domestic Banking System or Offshore Branches of Indonesian Banks in Relation to Overseas Mineral and Coal Sales (Keputusan Menteri ESDM No. 1952 K/84/MEM/2018 tentang Penggunaan Perbankan di Dalam Negeri atau Cabang Perbankan Indonesia di Luar Negeri untuk Penjualan Mineral dan Batubara ke Luar Negeri)
 Minister of Trade Regulation No. 94/2018 on the Use of L/Cs for Particular Exports (Peraturan Menteri Perdagangan No. 94/2018 tentang Ketentuan Penggunaan Letter of Credit (L/C) untuk Ekspor Barang Tertentu)
 Devisa Hasil Ekspor dari Barang Ekspor Sumber Daya Alam
 Undang-undang No. 25/2007 tentang Penanaman Modal
 Article 28 PADG 4/2023.
 Article 6 of Minister of Trade Reg. No. 17 of 2021 on Reputable Exporters and Importers (Peraturan Menteri Perdagangan No. 17 of 2021 tentang Eksportir dan Importir yang Bereputasi Baik).