- On 31 March 2015, Bank Indonesia issued Regulation No. 17/3/PBI/2015 on the Obligation to Use Rupiah in the Territory of Indonesia (“Regulation”) which contains broad provisions requiring, among other things, that Rupiah is used to settle financial obligations and other payment transactions taking place in the Territory of Indonesia (unless certain limited exemptions apply). This significant requirement applies to both cash and non-cash transactions. It is important to note that in addition the Regulation provides that, business entities must also state the price for goods and/or services only in Rupiah.
- According to the introductory recitals in the Regulation, the primary purpose of the Regulation is to support the stability of the Rupiah. It is said that the high demand for foreign currency in the domestic foreign exchange market, and the usage of foreign currency for transactions within the Territory of Indonesia, continue to add downward pressure on the Rupiah exchange rate which could potentially affect the stability of the Rupiah, particularly in light of likely future strengthening of the United States Dollar.
- The recitals to the Regulation also state that the introduction of the Regulation is meant to more effectively implement the provisions in Law No. 7 of 2011 on Currency (“Currency Law”) which has previously imposed the general requirement to use Rupiah for certain transactions in Indonesia. As is typical of Bank Indonesia regulations, the Regulation is drafted in broad terms capturing the main principles and further implementation details will be provided in further Bank Indonesia Circular Letters.
- An immediate key issue is the short transition time frame provided in the Regulation for compliance with the obligation to use Rupiah for non-cash transactions, which will be effective from 1 July 2015. There remains a high degree of uncertainty on how the obligation to use Rupiah for non-cash transactions will be applied in practice, and how strict Bank Indonesia will be in enforcing this new regulation. Further implementation details are expected in forthcoming Bank Indonesia Circular Letters. The Regulation confers broad discretionary powers on Bank Indonesia to take specific actions if there are difficulties encountered by business entities with specific characteristics, in implementing the obligation to use Rupiah for non-cash transactions.
Please click here for a summary of the key provisions in the Regulation and our preliminary analysis.
For further information, please contact:
David Dawborn, Partner, Herbert Smith Freehills
david.dawborn@hbtlaw.com
Tjahjadi Bunjamin, Partner, Hiswara Bunjamin & Tandjung
tjahjadi.bunjamin@hbtlaw.com
Cornellius Adrian Pranata, Partner, Hiswara Bunjamin & Tandjung
cornellius.adrian@hbtlaw.com
Nadia Harto, Hiswara Bunjamin & Tandjung
nadia.harto@hbtlaw.com
Vik Tang, Hiswara, Bunjamin & Tandjung
vik.tang@hbtlaw.com
Rahmellya Sari, Hiswara, Bunjamin & Tandjung
rahmellya.sari@hsf.com
