30 June, 2015
Bank Indonesia (“BI”) has recently issued a circular (the “Circular”) to explain the scope and ambit of BI Regulation No. 17/3/PBI/2015 (the “Regulation”) in relation to the obligation to use rupiah in payment transactions conducted within the territory of Indonesia, as stipulated under the Law of the Republic of Indonesia No. 7 of 2011 on Currency (the “Currency Law”). The Circular provides some clarification on the Regulation, and in particular it provides guidance on certain circumstances in which additional exemptions to the Currency Law may be sought.
The Circular has come into effect on 1 June 2015.
Strategic Infrastructure Projects
Article 23 of the Currency Law prohibits the rejection of Rupiah for payment or settlement purposes within the territory of the Republic of Indonesia, unless, inter alia, the use of foreign currency has been previously agreed upon in writing for payment or settlement of an obligation (the “Written Agreement Exemption”). Article 10 of the Regulation clarifies that the Written Agreement Exemption is available in the case of, inter alia, strategic infrastructure projects, where the approval of BI for an exemption has been secured.
The Circular explains that such strategic infrastructure projects include infrastructure projects in the following sectors: (1) transportation, including airports, ports and railways; (2) highways; (3) irrigation and drinking water; (4) sanitation; (5) information and communications technology; (6) power; and (7) oil and gas.
In order for a particular project in the above sectors to be exempted, a two-stage process must be gone through whereby the project must:
(i) be certified as being a strategic infrastructure project by central or local government, as evidenced by a certificate from relevant government ministry/agency; and
(ii) secure approval for exemption from BI based on a written application by the party concerned, or should the project be undertaken by a consortium, a written application from one of the consortium members on behalf of the entire consortium.
The exemption may be extended to cover not only transactions conducted as part of the project’s development up until completion, but also the sale of products or services produced by the project for a designated period of time, provided that this was envisaged from the outset.
BI is required to approve or reject an exemption request within a period of 30 days from the date of receipt of all the required application documents. Should it not be possible to arrive at a determination within 30 days, BI must inform the applicant of this. Given that the approval process may exceed 30 days, there appears to be no strict limit on the amount of time that may be taken by BI in making a decision.
Non-Cash Transactions By Parties With Special Characteristics
According to the Circular, BI may also grant exemptions for non-cash transactions involving particular types of businesses where the mandatory use of Rupiah presents specials difficulties for such businesses. In such circumstances, BI has the discretion to apply special policies based on a consideration of whether the obligation to use Rupiah will:
(a) require such businesses to make fundamental changes to their business systems and/or processes;
(b) endanger the survival of such businesses should a sufficient transitional period not be applied;
(c) adversely affect investment where businesses require foreign currency-denominated financing for a particular period and an obligation to quickly shift to rupiah use would disrupt such investment; and/or
(d) adversely affect businesses that have a significant influence on national economic growth.
In addition to the above factors, BI will also take into account the level of compliance of a business with BI regulations, including compliance with their obligations as regards forex earnings from exports and the application of prudential principles in relation to offshore borrowing by non-bank corporations.
Further Clarifications On The Currency Law
Dual Quotation
The Circular makes it clear that dual price quotations are prohibited, meaning that in most cases prices may only be quoted in Rupiah. Examples given in the Circular include prohibitions on the dual quotation of prices/fees in respect of:
(i) Price tags attached to goods offered for sale;
(ii) the services provided by agents (such as the fees charged by real estate agents, consultants and travel agents – this latter category has been particularly vocal in its opposition to the rupiahuse requirement given that they have to pay overseas-based airlines, and accommodation and other service providers, in United States dollars;
(iii) apartment, home, office, building, warehouse, and vehicle leasing rentals;
(iv) port charges and airline ticket prices / freight charges;
(v) restaurant prices;
(vi) price clauses in contracts;
(vii) offer, order and billing documents, including invoices, delivery orders and purchase orders; and/or
(viii) proofs of payment, such as receipts.
The Circular also stresses that the prohibition of dual quotation applies equally to goods and services sold via the Internet.
Role Of Banks
Banks are required to inform customers who intend to conduct foreign currency-denominated transactions of the obligation to use Rupiah within Indonesian territory. Should a customer persist with the intention of using foreign currency, the customer must be requested to state the purpose of the transaction on the transaction form or slip.
Transitional Provisions In Relation To Derivative Agreements
The Circular further elaborates the transitional provisions of the Regulation by providing that grandfathering applies to master or derivative agreements and other transaction documents, such as purchase and delivery orders, executed prior to 1 July 2015. Should a derivative or other form of agreement necessary for the implementation of the main agreement be treated as a stand-alone agreement, then it will not be grandfathered and must comply with the requirements of the Regulation if it is executed after 1 July 2015.
Similarly, agreements that are extended or amended subsequent to this date must also comply with the Rupiah-use requirements, with the term “amended” covering changes in the parties, the price of the goods/services, and/or the subject matter of the agreement.
For further information, please contact:
Yoke Ping Cheng, Partner, Rajah & Tann
yoke.ping.cheng@rajahtann.com
Benjamin Tay, Partner, Rajah & Tann
benjamin.tay@rajahtann.com
