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 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 on Wednesday.
“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 that they earn from the exports, it needs to be in the country.”
Exporters repatriated more than 90 percent of their earnings in the second quarter, but only 14 percent of that was converted into rupiah, according to data from the central bank.
The currency’s slump to its weakest level since the 1997-98 Asian financial crisis has pushed policy makers into action. To help rein in a current-account deficit of 3 percent of gross domestic product, 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 selloff.
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 managing director also called for greater global policy cooperation to tackle the emerging market turmoil, which was triggered by rising U.S. 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.”
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”
- Emerging-market 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 “much better.” Revenue is up more than 18 percent as of August, with tax receipts 16.5 percent higher. The budget deficit as of August was 1 percent of GDP compared to 1.6 percent at the same time last year