- On 1 June 2015, Bank Indonesia issued a circular letter No. 17/11/DKSP on the Obligation to Use Rupiah in the Territory of Indonesia (“Circular Letter”) to supplement Bank Indonesia’s Regulation No. 17/3/PBI/2015 on the Obligation to Use Rupiah in the Territory of Indonesia issued on 31 March 2015 (“Regulation”). The Regulation 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). The Circular Letter emphasizes the territorial principle underlying the obligation to use Rupiah and seeks to clarify certain provisions under the Regulation, including with regards to the “strategic infrastructure projects” exemption, the obligation imposed on business entities to state the price for goods and/or services in Indonesia only in Rupiah, and the means to be used by Bank Indonesia to monitor compliance with the Regulation.
- 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 Indonesian domestic foreign exchange market, and the common use of foreign currency for domestic 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 already imposed the general requirement to use Rupiah for certain transactions in Indonesia. Please click here for our previous e-bulletin on the Currency Law. As is typical of Bank Indonesia regulations, the Regulation is drafted in broad terms capturing the main principles. The Circular Letter now provides further implementation details for certain aspects of the Regulation but other aspects remain unclear, such as the types of activities which constitute cross border trade in services (the Circular Letter provides very few examples of these). It also remains unclear whether parties may agree on an exchange reference mechanism/formula to calculate the stated Rupiah price for goods and/or services.
Please click here for a summary of the key provisions in the Regulation and our preliminary analysis.