JAKARTA (Reuters) -Indonesia will require natural resource exporters to keep all proceeds onshore for at least one year under a new regulation the government will soon issue, its chief economic minister said on Tuesday.

The new requirement will apply to every export with a shipping document worth at least $250,000, said Minister Airlangga Hartarto. 

Under the current rules, exporters of natural resources such as coal, palm oil and nickel products are required to retain just 30% of the proceeds on every custom document for export worth at least $250,000 in the domestic financial system, for three months.

The office of the Coordinating Ministry for Economic Affairs said the new requirements could increase Indonesia's foreign exchange reserves by $90 billion per year. The country's reserves were $155.7 billion at end-December.

Indonesian policymakers have been considering changing export proceeds retention rules in response to declining U.S. dollar supply onshore amid capital outflows, which has pressured the rupiah.

The rupiah this month hit its weakest against the U.S. dollar since July.

The proceeds "can be used to pay taxes and can be converted into rupiah for operational costs", Airlangga told reporters.

The funds they put in local banks could be used as collateral for a loan if exporters needed it, he said.

The export earnings retention rules have been controversial since they were first introduced in 2023, praised by some bankers and analysts for boosting U.S. dollar liquidity but criticised by some exporters who said they needed to pay their bills.

To make it less painful for exporters, the central bank has been offering term deposit instruments with a competitive return. Those who convert earnings into rupiah also get a tax cut.

"If we can convert the fund into rupiah and use it, it's not a problem even though there's a risk of loss from currency conversion," said Eddy Martono, chairman of Indonesia's palm oil association GAPKI.

However, Executive Director of the Indonesian Mining Association Hendra Sinadia said even the current retention portion has disrupted cashflow.

"I hope this news of 100% retention won't become a reality," he said.

(Reporting by Stefanno Sulaiman; Additional reporting by Bernadette Christina; Writing by Gayatri Suroyo; Editing by Martin Petty and Alex Richardson)

By Stefanno Sulaiman