Authorities want to tighten some rules on exporters amid a rout in the currency, says finance minister

JAKARTA • Indonesian exporters must keep their earnings in the country to support efforts by the government to rein in the current-account deficit and shield the rupiah, Finance Minister Sri Mulyani Indrawati (picture) said.

While legislation protects the free movement of capital, authorities want to tighten some rules on exporters amid a rout in the currency, Indrawati said in an interview with Bloomberg TV’s Haslinda Amin in Hanoi yesterday.

“In a situation in which the country cannot even hold the revenue, for example from the exports, we really need to regulate a certain thing,” she said. “The foreign exchange (forex) that they earn from the exports, it needs to be in the country.”

Exporters repatriated more than 90% of their earnings in the second quarter, but only 14% of that was converted into rupiah, according to data from the central bank.

The currency’s slump to its weakest level since the 1997 1998 Asian financial crisis has pushed policymakers into action. To help rein in a current-account deficit of 3% of GDP, the government has boosted taxes on imports and increased the use of biodiesel to cut fuel purchases from abroad. Bank Indonesia has raised interest rates four times since May and pledged more pre-emptive measures to quell the sell-off.

Indrawati said the global debate about capital controls has changed since the Asian financial crisis two decades ago, and some countries may be “justified” in protecting themselves.

The former World Bank MD also called for greater global policy cooperation to tackle the emerging-market (EM) turmoil, which was triggered by rising US interest rates and a stronger dollar.

“Each country has to take what is necessary for them to protect but at the same time we have to be able to come up to this cooperation and coordination,” she said. “Everybody is now so busy with their own domestic policy that creates even more damage for their own, as well as for the global economy.”

Indonesia must be more prudent when it comes to spending given the US Federal Reserve’s policy normalisation and interest rate increases, Indrawati told a panel at the World Economic Forum. “Our deficit needs to be reduced. It’s a signal you have to be more prudent in spending, designing your budget,” she said.

The minister also made the following comments in her interview:

• Central bank: The institution is independent and will continue adjusting its policy rate and intervening in markets to curb volatility. “Bank Indonesia is going to continue doing their policy mix, not always intervention, but in this case interest rates, intervention, as well as allowing the flexibility to absorb.”

• Current-account deficit: The shortfall is “manageable” and outflows are “not driven by fundamentals”.

• EM slump: Indonesia isn’t an “exception” in the current rout and is moving along with other developing economies

• Budget: The deficit is “much lower” and the fiscal position is “much better”. Revenue is up more than 18% as of August, with tax receipts 16.5% higher. The budget deficit as of August is 1% of GDP compared to 1.6% at the same time last year — Bloomberg