Indonesia - Foreign Exchange Controls Indonesia - Foreign Exchange
Indonesia maintains an open capital account, but with some transaction limitations. Only authorized banks may carry out foreign trade-related exchange operations. BI requires the submission of evidence of underlying transactions to support the purchase of a foreign currency against the Rupiah through banks exceeding $25,000 per month (regulation 17/49/DPM). BI regulation No. 7/14/PBI/2005, dated June 14, 2005 describes prohibitions and restrictions in conducting foreign exchange transactions with foreign counterparts.
As part of a series of measures designed to strengthen the Indonesian rupiah and help reduce the current account deficit, Bank Indonesia issued a regulation in 2015 (17/3/PBI/2015), mandating that all domestic financial transactions must be conducted in Rupiah. While this was predicted to have a serious impact on some U.S. businesses operating in Indonesia, the regulation’s exemptions have helped to moderate the extent to which foreign firms are affected.
This rule stipulated that the mandatory use of Rupiah for “all transactions in Indonesia that are for the purpose of payment, all transactions in Indonesia that are for the settlement of other obligations that must be fulfilled with money, and all other financial transactions in Indonesia.” However, the regulation also contained many exemptions, including:
- Certain transactions related to state budget revenue and expenditure, such as receipts from oil and gas royalties
- Acceptance or provision of grants from or to overseas entities
- Transactions for the purpose of international trade
- Bank deposits in foreign currencies
- International financial transactions where either the provider or the receiver of the financing is domiciled overseas
- Business activities in foreign exchange conducted by banks pursuant to the law that regulates banking and sharia banking
- Foreign exchange transactions involving commercial paper issued by the Government in primary markets or secondary markets pursuant to the law regulating state debentures and state sharia commercial paper
- Other foreign exchange transactions that are conducted in accordance to previous laws regarding financial sector regulation such as the Bank Indonesia Law, the Capital Investment Law and the Indonesian Export Financing Institutions Law.
The 17/3/PBI/2015 regulation also provides that if businesses have trouble implementing the mandatory use of Rupiah for non-cash transactions, Bank Indonesia may issue them exemptions. In issuing these exemptions, BI will consider the readiness of the business actor, the continuity of the business activity, as well as investment activity and the interests of national economic development.
The limit on transaction amounts for commercial banks engaging in derivative transactions with foreign counterparts is $1 million. This limit covers all types of transactions involving foreign exchange selling and purchasing against the Rupiah; such transactions were previously unrestricted. However, the restrictions will not apply if the derivative transactions are conducted for hedging purposes within the framework of an investment in Indonesia that will last for at least three months. The regulation also requires foreign or domestic currency lending to foreign counterparts to be conducted in the form of a syndicated loan that engages a prime bank (that is, commercial banks with a certain investment rating from a well know rating agency) as lead bank for the purpose of project financing in the real estate sector in Indonesia. For violations, the regulation levies a fine of 10 percent of the transaction’s value.
In line with anti-money laundering laws, Indonesia tightened its restrictions on the amount of cash that may be carried across its borders. Carrying more than Rp100 million (approx. U.S. $8500) out of Indonesia requires prior approval from BI, and must be reported to the Director General of Customs and Excise (DGCE). A 10% fine up to Rp300 million may be applied for failure to report. Persons bringing in more than Rp 100 million must declare the amount. Under a new BI regulation dated May 5, 2017 and effective from March 5, 2018, no one except banks and licensed money changers will be allowed to bring in banknotes equivalent to Rp 1 billion ($75,130).
Exporters in Indonesia must repatriate their export earnings from offshore banks to domestic banks within 90 days from the date of the export declaration form. Once repatriated to Indonesia, there are no restrictions on exporters from re-transferring their export earnings back to an offshore bank.
BI also requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI. The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.