Indonesia Requires Exporters to Retain Earnings Onshore: Key Insights for Investors

On March 1, 2025, Indonesia implemented a major shift in its foreign exchange policy by requiring natural resource exporters to retain all their foreign exchange proceeds within the domestic financial system for at least a year. This policy, introduced through Government Regulation No. 8 of 2025, replaces the previous requirement that only a fraction of export proceeds be retained for a shorter period.

The regulation is part of the government’s strategy to strengthen Indonesia’s foreign exchange reserves and ensure that export revenues contribute directly to national economic stability. However, in the first few weeks of implementation, businesses have already reported challenges, and foreign investors are assessing the impact on their operations in Indonesia’s commodity-driven economy.

Strengthening foreign exchange reserves

Indonesia remains one of the world’s largest exporters of coal, palm oil, fisheries, nickel, and forestry products, generating billions in revenue from these industries. In previous years, a significant portion of export earnings was held offshore, limiting its contribution to domestic financial stability.

With the introduction of this new policy, the government aims to boost foreign exchange reserves, increase dollar liquidity within the banking system, and strengthen the rupiah against global currency fluctuations. Early reports indicate that the regulation is already influencing the financial sector, with Indonesian banks seeing an increase in foreign currency deposits.

Key changes under the new regulation

The most significant shift under the new regulation is the requirement that exporters in the mining, plantation, forestry, and fisheries sectors retain all their foreign exchange earnings in Indonesia for a full year. Previously, they were only required to retain 30 percent of their proceeds for three months.

These funds must be deposited in special accounts at the Indonesian Export Financing Institution or at foreign exchange banks approved by the Financial Services Authority. The regulation prohibits exporters from holding these proceeds in offshore accounts or at foreign bank branches operating in Indonesia.

Permitted uses of retained earnings

Although businesses must retain their earnings onshore, the government has outlined specific ways in which these funds can be used. Exporters can convert their proceeds into Indonesian rupiah at designated banks, make tax and non-tax state payments, distribute dividends in foreign currency, procure raw materials and capital goods, and repay foreign currency loans.

Despite these allowances, some businesses have raised concerns that the restrictions limit financial flexibility, particularly for those that rely on offshore financing for their operations.

Early incentives and compliance measures

To encourage compliance, the government has introduced tax incentives, including a 0% income tax rate on interest earned from foreign exchange deposits. Exporters are also allowed to use retained funds as collateral for loans from Indonesian banks, providing additional liquidity options.

However, Bank Indonesia and the Financial Services Authority have also emphasized strict enforcement of the regulation. Non-compliant exporters face penalties, including potential suspension of export services, which could significantly disrupt business operations.

Initial challenges and industry reactions

In the first few weeks of implementation, businesses and industry groups have expressed concerns over liquidity constraints. Mining and plantation companies have reported difficulties in managing cash flow, as funds that would normally be used for global operations are now tied up within Indonesia’s financial system.

Some foreign investors are also reassessing their expansion plans in Indonesia’s resource sectors due to the new restrictions. While the government has framed the policy as a necessary step to enhance economic resilience, some analysts warn that it may discourage foreign investment by limiting capital mobility.

Implications for Indonesia’s OECD accession

Indonesia is in the process of seeking accession to the Organization for Economic Co-operation and Development (OECD). However, the strict foreign exchange retention policy could be seen as a restriction on capital movement, conflicting with OECD principles on financial liberalization.

To address this, Indonesia may need to negotiate temporary exemptions or adjustments to the policy as part of its OECD membership process. Other countries, such as Türkiye, have previously introduced similar measures but have faced scrutiny in international trade discussions.

Strategic considerations for foreign investors

Indonesia’s new export earnings retention policy represents a significant shift in its foreign exchange regulations. While it aims to strengthen the country’s financial system, its early implementation has already raised concerns about liquidity constraints and investment impacts.

Foreign investors and exporters must carefully assess how this policy affects their operations and consider strategic financial adjustments to remain compliant while maintaining business flexibility.

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