The Indonesian government is planning to require exporters to use letters of credit (L/Cs) with the aim of boosting the country's foreign exchange reserves.

The requirement will be limited to the export of certain mining and agricultural commodities.

Potential benefits

Indonesia is planning the L/C requirement for exporters in order to capture more export revenue as well as strengthen the country's foreign exchange reserves.

Vice President Jusuf Kalla recently said that a huge amount of export proceeds currently finish up in offshore banks in Singapore and Hong Kong.

"There should no longer be any [foreign exchange] outflows without our knowledge. All exports must use L/Cs, thereby we can register our forex reserves," he told a recent meeting of the Indonesian Chamber of Commerce and Industry.

Commodities

Trade Minister, Rachmat Gobel, said that the requirement to use L/Cs will apply from next year.

The minister said it would initially apply to mining and agricultural commodities.

Previous legislation

Similar legislation requiring L/Cs for exports was introduced in Indonesia in 2009 but was abandoned a year later as foreign exchange reserves strengthened.

Under that legislation, L/Cs were required for exports of coal, tin, nickel and copper as well as palm oil, rubber, coffee and cocoa.

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