The start of 2019 saw a renewed attempt by the government to compel exporters of natural resources-based commodities to repatriate their export earnings and deposit them in the Indonesian financial system as part of a series of measures to bolster the rupiah against the various headwinds battering emerging-market currencies. The new rules on the repatriation of export proceeds in the natural resources sector are set out in Government Regulation (GR) 1/2019,(1) which took effect on 10 January 2019 (for further details please see "Repatriation of natural resource export earnings: new regulation signals stricter approach"). After almost six months, the minister of finance has now established penalties for non-compliance with GR 1/2019 by issuing Regulation 98/PMK.04/2019 (MOF Regulation 98/2019),(2) which took effect on 1 July 2019.
GR 1/2019 vests the authority to supervise compliance with its requirements in Bank Indonesia. In line with this authority, the Central Bank has issued Regulation 21/3/PBI/2019 (PBI 21/2019)(3) to govern the technical, banking-related aspects of GR 1/2019's implementation. While most of PBI 21/2019's provisions lie outside the scope of this article, several of them do provide additional clarity as to certain key terms used in GR 1/2019.
Key requirements under GR 1/2019
The key obligations imposed on exporters by GR 1/2019, as reiterated in MOF Regulation 98/2019, are summarised below.
Forex-denominated export proceeds
Forex-denominated export proceeds in the mining, plantation, forestry and fisheries sectors must be deposited in the Indonesian financial system. There is no requirement for them to be converted into rupiah and no minimum period during which they must remain parked in Indonesia.
Repatriated export proceeds
Repatriated export proceeds must be deposited in the Indonesian financial system using a special account held with a bank that is licensed by the Indonesian Financial Services Authority (OJK) to engage in foreign-exchange operations (a forex bank).
Additional information on the technical requirements and criteria for forex banks and special accounts is provided in PBI 21/2019, which states that:
- besides OJK-licensed Indonesian banks, forex banks may take the form of the Indonesian branch of a foreign bank but not a foreign branch of a bank that has its head office in Indonesia; and
- a special account may:
- be a rupiah or foreign currency account; and
- take the form of a current account, savings account or "other account that may be used for conducting transactions"; and
- more than one special account may be maintained by an exporter, whether with the same or several forex banks.
Export proceeds
Export proceeds should be deposited in a special account within three months from the filing of the relevant customs export notification.
Depositing funds in special accounts
The funds deposited in a special account may be used only for:
- the payment of customs and other duties relating to exports;
- loan-related payments;
- import payments;
- the distribution of profits and dividends; and
- such other purposes as prescribed by the Investment Law.(4)
Article 8(3) of the Investment Law provides that investors may transfer or repatriate foreign currency to overseas destinations in the case of:
- capital;
- profits, bank interest, dividends and other income;
- 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;
- investment financing;
- loan repayments;
- royalties or other expenses;
- employee salaries;
- proceeds of the sale or liquidation of an investment;
- compensation for losses;
- compensation in the case of nationalisation;
- payments relating to technical assistance, technical and management services, project contracts and IP rights; and
- the proceeds of asset sales.
Escrow account
If export proceeds are to be received using an escrow account, that account must be held with an Indonesian forex bank. If an exporter has an existing escrow account overseas for such purpose, then it must be replaced by an escrow account with a forex bank in Indonesia.
Penalties for non-compliance under MOF Regulation 98/2019
If an exporter fails to deposit export proceeds in a special account within three months from the filing of the relevant customs export notification, an administrative fine of 0.5% of the value of the export proceeds that have not been deposited will be levied. PBI 21/2019 explains that 'export value' refers to the free-on-board value that is stated in the customs export notification.
If an exporter uses export proceeds deposited in a special account for purposes other than an approved purpose (as listed above), an administrative fine of 0.25% of the value of the export proceeds that are used for unauthorised purposes will be levied.
Where export proceeds are to be received via an escrow account, should an exporter fail to use an escrow account in Indonesia for such purpose or fail to replace an existing overseas escrow account with an escrow account in Indonesia, the provision of customs services in the export field to such exporter will be suspended until it fulfils its obligation to use a domestic escrow account.
Based on Bank Indonesia's findings, the head of the relevant customs office has the authority to calculate and levy the above administrative fines and suspend customs services.
A key problem with GR 1/2019 (as further elaborated by MOF Regulation 98/2019 and PBI 21/2019) is that it provides no exceptions which account for longstanding business practices and commercial arrangements. Providers of commodity-based financing have raised concerns where typically offshore accounts are used to receive export proceeds under foreign law-governed security arrangements. In light of the repatriation policy established by GR 1/2019, such a structure will no longer be a viable option. Consequently, Indonesian forex banks are expected to increasingly take on the role of onshore security agents on behalf of lenders so as to ensure enforceability in respect of collateralised onshore bank accounts.
Another issue relates to Indonesia's civil system of hierarchical legislation. Under Article 3(3) of MOF Regulation 98/2019, a more detailed description of the precise types or categories of natural resources export that are subject to the regulation is to be provided by a directive from the director general of Customs and excise. However, such directive has yet to be issued. Unfortunately, such delays in the issuing of essential subsidiary legislation are quite common across all ministries and sectors, thereby giving rise to a considerable degree of legal uncertainty.
Endnotes
(1) Government Regulation 1/2019 on Export Proceeds from the Exploitation, Management and/or Processing of Natural Resources.
(2) Minister of Finance Regulation 98/PMK.04/2019 on Rates for Administrative Sanctions in the Form of Fines, and Procedures for the Levying, Collection and Paying of Administrative Sanctions in the Form of Fines, for Non-Compliance with the Provisions on Export Proceeds from the Utilisation, Management and/or Processing of Natural Resources.
(3) Bank Indonesia Regulation 21/3/PBI/2019 on the Receipt of Export Proceeds from the Exploitation, Management and/or Processing of Natural Resources.
(4) Law 25/2007 on Investment.
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