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09 October 2015
On March 31 2015 Bank Indonesia (the Indonesian central bank) issued the Regulation on Mandatory Use of the Rupiah within the Republic of Indonesia (17/3/PBI/2015) (for more details please see "Mandatory use of the rupiah in Indonesia"). This was followed by the issuance of Circular Letter 17/11/DKSP on June 1 2015. Mandatory use of rupiah for all cash and non-cash transactions and other requirements under the regulation and circular letter took effect on July 1 2015.
The regulation states that the rupiah is a symbol of Indonesia's sovereignty and that the promotion of its use is needed to stabilise its exchange rate. The regulation requires the use of rupiah for all transactions (both cash and non-cash) effected in the Indonesian territory.
In prescribing the mandatory use of rupiah, the regulation and circular letter apply the territoriality principle that underlies many of Bank Indonesia's other regulations.
The regulation and circular letter provide that all transactions carried out in Indonesia – by residents and non-residents – must be effected in rupiah; parties are prohibited from refusing to accept rupiah as payment. The transaction itself and payments made pursuant to it are regarded as one integrated act and payments made to or by an Indonesian party as part of a transaction carried out in Indonesia must be in rupiah. However, use of rupiah is not mandatory for foreign currency transfers by a resident party to a non-resident party that are not undertaken as payment or other settlement of a transaction effected in Indonesia.
The following transactions are exempt from the regulation and circular letter:
Apart from these exemptions, Bank Indonesia has discretion to issue special policies – on application from affected parties – with respect to the use of rupiah. The circular letter stipulates that if implementation difficulties arise for businesses with certain distinct characteristics, Bank Indonesia may issue policies to account for these special considerations. Such considerations include:
In addition to these factors, Bank Indonesia will consider an applicant's compliance with other currency-related regulations, such as those on repatriation of export revenue and implementation of prudential principles in managing offshore borrowings.
The regulation and circular letter not only contain provisions on the mandatory use of rupiah, but also prohibit use of dual price denomination in rupiah and another currency. This prohibition applies to:
The prohibition against dual price denomination also applies to online publication of prices for products and services.
Bank Indonesia supervises compliance with the mandatory use of rupiah and the obligation to quote prices of goods and services in rupiah. It is empowered to:
All banks are required to inform clients wishing to make payments in foreign currency of the mandatory rupiah use requirements and must request further information regarding the purpose of such payments.
Bank Indonesia may also impose the following penalties for non-compliance in both cash and non-cash transactions:
Other than administrative penalties, Bank Indonesia may issue a recommendation to revoke the relevant party's business licence or require the cessation of its operations.
The circular letter clarifies that written agreements that were entered into before July 1 2015 remain valid until their expiry. These include implementing agreements that derive from master agreements and documents concerning transactions to be carried out by the parties based on such agreements (eg, purchases and delivery orders).
Derivative contracts and master agreements signed after July 1 2015 that are treated as standalone agreements will be subject to the mandatory rupiah use requirements. Any extension of or amendment to the terms of a written agreement (eg, a change of parties, the price of goods or services or the object of the agreement) entered into after July 1 2015 will also be subject to the mandatory rupiah use requirements.
For further information on this topic please contact Theodoor Bakker, Gustaaf Reerink or Emir Nurmansyah at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Ali Budiardjo, Nugroho, Reksodiputro website can be accessed at www.abnrlaw.com.
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