Bringing Home revenues Dollar-denominated Export

The local market's dwindling supply of US dollars is one major headwind causing the rupiah's free fall. In normal times, the market supply of US dollars comes from exporters' proceeds, which occasionally are shored up by Bank Indonesia reserves when exports run low or when there is a sudden outflow of capital. But, lately, the supply of US dollars from export proceeds have virtually dried up, with exporters prefering to park their funds in Singapore. Without these proceeds from Indonesian exports flowing into Indonesia's banking system, Bank Indonesia becomes the local market's only source of US dollars and, with its reserves dwindling; Bank Indonesia funds supporting the rupiah increasingly difficult.

Singapore as the region's financial center, has economies of scale, enabling it to process financial transactions efficiently. But, more importantly, it has a competitive, low tax regime. It is this attractive tax package that the government Singapore trying to address in its recent second economic package. One part of the regulatory package that received much attention is the government's decision to cut tax rates on export fund deposits with Indonesian banks.