International contractors to be hit by strict new limits on foreign currency use in Indonesia, says expert

The new rules came into force for cash transactions on 31 March, and will apply to "non-cash" transactions, such as equity transactions, from 1 July. Regulations published by the Bank of Indonesia (BI) at the end of March (19-page / 90KB PDF) set out limited exceptions to the rules, mainly in relation to international financing and business banking activities.

Projects expert Nancy Lim of Pinsent Masons, the law firm behind Out-Law.com, said that companies which have traditionally preferred contracting in foreign currencies regarding their Indonesian projects should make themselves aware of the new restrictions, such as those carrying out construction in Indonesia.

"Unless a transaction falls under the exception, international companies contracting in Indonesia will need to bear this requirement in mind," she said.

She said that the BI regulations do not appear to prevent parties from linking pricing under a contract to a foreign index, nor do they  appear to place any restrictions on foreign currency convertibility.

Indonesian law already required the use of rupiah; however, parties to a contract were permitted to agree in writing to payment in another currency. The new regulations end this exception. They also require products and services related to transactions to be denominated in rupiah, in addition to requiring the transactions to be performed in rupiah.

Exceptions to this general obligation include certain transactions related to the state budget, transactions involving the acceptance or provision of grants to and from abroad, bank savings in foreign currencies and international financing transactions. International trading transactions including imports and exports of goods, cross-border supply and consumption abroad are also exempt, although any ancillary services such as berthing, container storage or airport parking are not exempt.

Breaches of the new rules may be subject to written warnings and fines of up to 1% of the transaction value, and may ultimately be subject to bans from being involved in payment transactions. BI can also make recommendations for action to other relevant authorities, such as licensing authorities, in the event of persistent non-compliance.