SocGen On Indonesia Export Receipts Plan

"...We can roughly estimate a cumulative export earnings of $67bn between February and April, 30% of which is c.20$bn, lower than the reported projection of $50bn. However, if some of the recent earnings were also expected to be repatriated, i.e., 30% of export earnings since October 2022 in addition to expected earnings between February and April, we arrive at roughly the same projected $50bn of FX inflows. Therefore, the projected $50bn increase in FX inflows from this move, appears feasible, if repatriation of recent earnings were also taken into account. Overall impact of this plan could be positive to the IDR."

"Indonesia’s most recent data on FX reserves (January 2023) was around $125bn (excluding gold, SDR and other reserve assets). Therefore, the potential impact of the proposed plan (all other factors remaining constant) translates to a 40% boost to FX reserves (without repatriation of earnings since October, a 16% increase). In terms of the IMF’s reserve adequacy, current FX reserves/IMF’s reserve adequacy for 2022, is at 102%. Considering the impact of this move, the ratio could increase to 143% (116% without repatriation of recent earnings), a level comparable to countries such as India and the Philippines. Therefore, this is a notable reduction in external vulnerabilities of the IDR, in our opinion. If the inflow of earnings were to be sizably absorbed by the central bank, to shore up FX reserves given the heightened risks of a stronger dollar and a hawkish Fed, the appreciation pressure on the IDR could be limited. On the strategy front, we remain tactically long the IDR vs the KRW, which has been up +3% since initiation."