Government Regulation No. 1 of 2019 (“GR 1/2019”), which entered into effect on 10 January 2019, requires exporters in the natural-resources sector to repatriate their forex-denominated export earnings to Indonesia.
While this requirement is not actually new, firmer action to enforce it has been on the cards for some time, given that it was announced as a key part of the Government’s 16th Economic Reform Package in November 2018. Overall, GR 1/2019 is clearly intended to bolster the country’s balance of payments situation, which has worsened considerably over the past year.
The Government appears very serious about enforcing GR 1/2019, which is backed by sanctions that permit the levying of fines, imposition of export bans and the revocation of business licenses in cases of non-compliance. Commenting on Wednesday (Jan 23), Finance Minister Sri Mulyani Indrawati said: “This is mandatory, meaning it must be complied with. There will be consequences for those who fail to comply.”
In reality, all exporters were required to repatriate forex-denominated export earnings prior to GR 1/2019 under Bank Indonesia Regulation 16/10/PBI/2014 (“PBI 16”), which was issued on 14 May 2014. This regulation, which remains in effect, is discussed in greater detail in Section H below.
In addition to PBI 16, there are a number of sectoral regulations at the state 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 L/Cs and repatriate all forex-denominated export earnings to Indonesia. In addition, there is Minister of Trade Reg. No. 94/2018 (as amended), which 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 These regulations have not been revoked by GR 1/2019 and thus remain in effect.
B. Scope of GR 1/2019
Forex-denominated proceeds of exports (“Export Proceeds”) in the (a) mining; (b) plantation; (c) forestry; and (d) fisheries sectors must be deposited in the “Indonesian financial system.” However, GR 1/2019 does not require Export Proceeds be converted into rupiah. Neither does it stipulate a minimum period during which they must remain parked in Indonesia.
Export Proceeds are defined as foreign exchange-denominated proceeds from the exportation of goods that derive from the “exploitation, management and/or processing of natural resources.”
The precise types or categories of exports that are subject to GR 1/2019 are to be subsequently prescribed by Minister of Finance regulation.
GR 1/2019 applies to exporters in the form of entities and natural persons who are domiciled, or plan to be domiciled, in Indonesia for at least one year.
No exemptions are provided by GR 1/2019 for existing export contracts or arrangements.
C. Special Account Requirement
Export Proceeds must be deposited in a special account (“Special Account”) held with a bank that is licensed by the Financial Services Authority (OJK) to engage in foreign-exchange operations (“Forex Bank”). The definition of a Forex Bank in GR 1/2019 expressly excludes an overseas office of a bank that is headquartered in Indonesia.
As regards timelines, Export Proceeds should be deposited in a Special Account within not more than three months subsequent to the filing of the relevant customs export notification (pemberitahuan pabean ekspor).
More specific provisions governing the repatriation of Export Proceeds are to be subsequently issued by Bank Indonesia.
D. Use of Special Account Funds
The funds deposited in a Special Account may be used for the following purposes:
a. payment of customs and other duties related to exports;
b. loan-related payments;
c. payments for imports;
d. distribution of profits/dividends; and
e. other purposes, as described in the Investment Law.
Article 8(3) Investment Law provides that an investor may transfer or repatriate foreign currency to overseas destinations in the case of: (a) capital; (b) profits, bank interest, dividends and other income; (c) the purchase of raw and auxiliary materials, semi-finished and finished products; and the replacement of capital goods required for the sustainability of an investment; (d) investment financing; (e) loan repayment; (f) royalties or other expenses; (g) employee salaries; (h) proceeds of the sale or liquidation of an investment; (i) compensation for losses; (j) compensation in the case of nationalization; (k) payments related to technical assistance; technical and management services; a project contract; and intellectual-property rights; and (l) the proceeds of asset sales.
If Export Proceeds are to be received using an escrow account, that account must be held with a Forex Bank. If an Exporter has an existing escrow account overseas for such purpose, then it must be replaced by an escrow account at a Forex Bank in Indonesia within 90 days of GR 1/2019 coming into effect.
For the purposes of GR 1/2019, supervisory authority over export activities in the relevant sectors is vested in the Ministry of Finance; while Bank Indonesia is assigned authority to supervise the repatriation and utilization of Export Proceeds. The OJK, meanwhile, is responsible for overseeing the use of escrow accounts.
Reports on the supervision conducted by Bank Indonesia and the OJK shall be submitted to the Ministry of Finance.
F. Sanctions for Non-Compliance
A non-compliant exporter is liable to administrative fines, an export ban, and/or the revocation of its business license, depending on the gravity of the non-compliance. Further provisions governing the size of fines will be issued by way of Minister of Finance regulation.
G. Implementing Regulations
The ancillary or implementing regulations for GR 1/2019 should be issued by the Minister of Finance and Bank Indonesia, as the case may be, within seven days of GR 1/2019 coming into effect.
H. ABNR Commentary
As mentioned to in Section A above, the principal regulation on the repatriation of Export Proceeds prior to GR 1/2019 was PBI 16, which remains in effect. However, the enforcement of PBI 16 has been patchy. By contrast, it seems that the Government is very serious about enforcing GR 1/2019.
A key weakness of PBI 16 is that it does not specifically state that all Export Proceeds must be “deposited in the Indonesian financial system.” What it says is that Export Proceeds must be “received” through an Indonesian Forex Bank.
By contrast, GR 1/2019, which expressly requires Export Proceeds to be deposited in the Indonesian financial system, is more tightly drafted and leaves less room for differing interpretations.
Further, the Special Account requirement in GR 1/2019 should help Bank Indonesia overcome the problems it has experienced in monitoring and tracking repatriated Export Proceeds.
Under Indonesia’s hierarchical system of legislation, a government regulation normally only provides the outline of a new scheme or framework. This also applies in the case of GR 1/2019, which requires Bank Indonesia and the Minister of Finance to issue more detailed ancillary or implementing regulations within seven days of GR 1/2019’s coming into effect. In reality, however, time-bound targets for the issuance of subsidiary regulations are frequently overrun.