Sinta Damayanti and Gadis Dewi Sari of Hermawan Juniarto in Jakarta on a new requirement related to the use of the Rupiah in domestic finance transactions
Introduction
Last year, the Indonesian Central Bank issued a regulation which requires the use of the Indonesian Rupiah for all domestic transactions – Bank Indonesia Regulation Number 17/3/PBI of 2015 on Mandatory Use of Rupiah in the Territory of the Republic of Indonesia (‘BIR 17/3/2015’). Further, on June 1 2015, Circular Letter Number 17/11/DKSP on Mandatory use of Rupiah in the Territory of the Republic of Indonesia (‘Circular Letter 17/11/DSKP’) is issued. These regulations are issued as implementing regulations of the Law Number 7 of 2011 on Currency (‘Currency Law’).
2015 was not an easy year for Indonesia; it was like surviving a global blustery wind. Indonesia had seen some weakness due to the poor recovery in its current account deficit, a low foreign-reserve level and a low manufacturing export base. However, in line with the central bank’s forecast, 4Q15 GDP growth came in at 4.78% (3Q15: 4.73%) and was expected to remain flat until 1Q16. Even at 4.7%, Indonesia economic growth would still remain one of the highest next to India, China, Philippine and Malaysia. Growth drivers include the expected government infrastructure project realisations and solid direct investment. However, it is still foreseen that Indonesian Rupiah depreciation will continue into 2016, to Rp14.500 with Indonesian Rupiah movements heavily influenced by reactions to the USA Federal Reserve’s rate hike.
Use of Indonesian Rupiah in domestic transactions will not only increase the dignity of and trust in the Indonesian Rupiah, but also would espouse the exchange rate stability of the Indonesian Rupiah.
Exemption
The nature of this obligation to use Indonesian Rupiah adheres to territorial basis. Notwithstanding these regulations contain spirit as the eminent configuration step of Bank Indonesia to bolster the Rupiah use, BIR 17/3/2015 oversees the exemptions provided for by Article 21 of the Currency Law, which are (i) certain transactions for implementing the state budget; (ii) obtaining or providing a grant from or to a foreign country; (iii) international trade transactions; (iv) bank deposits; and (v) international funding transactions.
Of particular interest is Article 8(1) of BIR 17/3/2015, which explains that the international trade exemption covers:
i. import/ export of goods (to/ from Indonesia);
ii. cross-border trade transactions in the form of the cross-border supply of goods, which includes goods purchased online and payment of experts seconded in Indonesia; and
iii. cross-border trade transactions in the form of the cross-border supply of services (in this regulation referred to as “consumption abroad”).
Nonetheless Article 8(2) clearly states that this exemption does not apply to the payment of ancillary expenses incurred in Indonesia, such as port fees, airport handling charges, transportation costs, etc., related to the import/export of goods.
With regard to the “international financing” exemption, Article 9 provides that either the provider or recipient of the financing must be domiciled in Indonesia.
In the meantime, Article 5 provides additional exemptions on top of those provided in the Currency Law, namely:
foreign exchange commercial operations conducted by a bank in accordance with conventional and shariah banking legislation (this includes among others - foreign exchange denominated loans for export and other purposes, foreign exchange interbank money transactions, foreign exchange denominated bonds, foreign exchange denominated sub-debt, etc.);
transactions involving foreign exchange-denominated Indonesian government securities on the primary and secondary markets; and
other foreign exchange transactions that are conducted in accordance with the law (including the laws on Bank Indonesia, the capital markets and export funding agency).
Further, Article 10 of BIR 17/3/2015 also regulates that an agreement concerning strategic infrastructure projects be allowed to use another currency other than the Indonesian Rupiah. To be qualified as a strategic infrastructure project, as referred to in this regulation, the project should be declared by the national or regional government as a strategic infrastructure project which should be evidenced by a statement letter from the relevant government contracting agency, and obtain an approval for exemption from Bank Indonesia.
Sinta Damayanti
Hermawan Juniarto
Jakarta
Gadis Dewi Sari
Hermawan Juniarto
Jakarta