New Bank Indonesia regulation on mandatory use of Rupiah in Indonesia

Finance & Projects Jakarta Client Alert April 2015 New Bank Indonesia Regulation on Mandatory use of Rupiah in Indonesia On 31 March 2015, Bank Indonesia ("BI") issued Regulation No. 17/3/PBI/2015 on Mandatory Use of Rupiah within the Territory of the Republic of Indonesia ("PBI 17/2015"). PBI 17/2015 requires the mandatory use of Rupiah in cash or non cash transactions conducted in Indonesia. It also requires that all price quotations of goods and services must be in Rupiah. Transactions which are exempted from the mandatory use of Rupiah are  transactions related to the implementation of the State budget;  receipt or grant of offshore grants;  international commercial transactions (such as export-import of goods and services);  bank deposits in foreign currency;  international financing transactions;  transactions in foreign currency conducted based on prevailing laws and regulations (such as any business in foreign currency conducted by banks; transactions in the primary and secondary market on securities issued by the government in foreign currency). Please note, however, any additional activities related to export or import of goods (including activities using vessels, airplanes, or other transportation means, e.g. berthing of ships at ports, loading and unloading of containers, temporary storage containers at ports, and parking of airplanes at airport) are not categorized as "international commercial transactions" and therefore, are subject to the mandatory use of Rupiah. Exemptions for Agreements Previously, before the issuance of PBI 17/2015, Article 23 (2) of the Currency Law could be read as containing an exemption from the requirements under Article 21 (1) of the Currency Law, whereby if the payer and the recipient had agreed in writing to the terms of payment in a currency other than Rupiah, that transaction will be exempted and such use of another currency in that transaction would not breach the law. (Please click here for our earlier Client Alert regarding Currency Law - November 2011) Finance & Projects 2 New Bank Indonesia Regulation on Mandatory use of Rupiah in Indonesia April 2015 However, it seems that PBI 17/2015 clarifies that the exemption applies only for: a. agreements relating to transactions exempted from the mandatory use of Rupiah as referred to in PBI 17/2015; or b. agreements for "Strategic Infrastructure Projects" that have obtained approvals from BI. "Strategic Infrastructure Projects" include transportation infrastructures (including airport services, port services, and railways facilities and infrastructures), roads, irrigations, drinking water infrastructures, sanitation infrastructures, telecommunication and information infrastructures, power infrastructures, and oil and gas infrastructures, funded by offshore borrowings from bilateral and multilateral agencies (e.g. IFC, JBIC, JICA, ADB, IDB) (or if the borrowing is in the form of a syndicated loan, the contribution of these agencies exceeds 50%). In this case, statement letters from the relevant ministries or government agencies must be obtained for these projects (stating that the projects are indeed strategic infrastructure projects). Other written agreements on non-cash payments or settlement of obligations in foreign currency made before 1 July 2015 will still be valid until the expiry of those agreements. No exemptions are applicable for extensions or amendments of these agreements. Further Provisions and Effectiveness of PBI 17/2015  Further provisions on the detailed implementation of PBI 17/2015 will be set out in a BI circular letter.  The regulation is effective from 31 March 2015. However, the mandatory use of Rupiah for non-cash transactions will only become effective from 1 July 2015. Sanctions  Any non-compliance with the mandatory use of Rupiah for non-cash transactions will be subject to sanctions in the form of written warnings and fine (up to a maximum of 1 billion Rupiah) as well as prohibitions on being involved in payment transactions.  Any failure to make price quotations in Rupiah, or any failure to submit any report/information/data requested by BI with respect to compliance with this new regulation, will be subject to administrative sanctions in the form of warning letters.  BI can also make a recommendation to the relevant authorities that they take any necessary actions with respect to the non-compliance (including a recommendation to revoke the relevant business license or to stop the business activities of the relevant business entities). Undoubtedly, this PBI will require certain adjustments in doing busines in Indonesia. In the coming weeks, we expect there will be discussions on what kind adjustments are necessary. Like in any new regulations, there will be issues and questions which need to be raised to BI. We will keep monitoring the discussions on this topic, and provide further updates to this Client Alert. www.hhp.co.id For further information please contact Erwandi Hendarta Partner +62 21 2960 8555 [email protected] Indri Pramitaswari Guritno Partner +61 21 2960 8686 [email protected] Yossy Sulistyorini Senior Associate +61 21 2960 8585 [email protected] Hadiputranto, Hadinoto & Partners The Indonesia Stock Exchange Building, Tower II, 21st Floor Sudirman Central Business District Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 Indonesia Tel: +62 21 2960 8888 Fax: +62 21 2960 8999 ©2015 Hadiputranto, Hadinoto & Partners. All rights reserved. Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. 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