Indonesia’s Trade Ministry has issued a stricter regulation requiring companies to use L/C for exports of coal, palm oil, minerals, and oil and gas, as the government seeks to strengthen its foreign exchange reserves, Investor Daily reported, citing Trade Minister Enggartiasto Lukita, Sept. 25.
With the regulation, the Trade Ministry will have the authority to manage payments used in exports of certain goods.
Lukita explained, as quoted by the Indonesian-language daily, that under the new regulation, exporters of the four commodities must use L/C for payment and use a domestic foreign exchange bank. Exporters will also be required to put information about L/C payment in the notification of exports of goods (PEB), to obtain verification from the appointed surveyors, submit a report on actual exports with a final L/C price, the minister said.
The new law also regulates prices. Prices which were stated in the L/C must be at minimum the same as global export prices. If prices are unavailable, the price used in L/C will be set by the government/countries of the export destination, the minister said.
Trade Minister, Finance Minister, Indonesia’s Central Bank Governor, and other related ministries will jointly monitor L/C payment.
The mandatory use of L/C is the latest move by the government to narrow the trade deficit as the country has been struggling to stem weakening rupiah against the dollar. August, Indonesia recorded a trade deficit of USD 1.02 Billion due to an increase in oil and gas imports, despite a surplus in non oil-gas exports.
In the second quarter of 2018 Indonesia’s current account deficit widened to USD 8.02 Billion, or 3% of the nation’s gross domestic product (GDP), the biggest deficit since Q2-2014.
Earlier, the Energy and Mineral Resources Ministry has issued a regulation requiring miners to transfer funds from overseas sales of coal and mining products to domestic banks. In addition, the ministry has the authority to monitor mining export revenue deposited in domestic banks or Indonesian banks in overseas.
“We support the government policy to strengthen our economy,” said Yovie Priadi, president director of coal miner Reswara Minergi Hartama, by email. “Regarding L/C rule, the company is still analysing the impact and mitigation plan arising from the implementation of L/C rule”, he added.
As for the requirement to deposit revenue from coal sales in domestic banks, Priadi said, the company has used domestic banks for collecting its coal sales revenue and “it will be optimised.”
Singgih Widagdo, the head of public policy at the Indonesian Association of Geologist, said the new regulation aims at strengthening the previous rule issued three years ago on mandatory use of L/C for coal exports.
“I think the government just wants to make sure that every company complies with the rule because it’s trying to reign current account deficit,” Widagdo said.
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