Minister: Mandatory Rupiah Policy Can't Be Enforced Immediately in Energy Sector
Jakarta. Indonesian Energy Minister Sudirman Said has conceded that the enforcement of rupiah use in all local transactions will have to be a gradual process, in what is shaping up to be another half-baked policy by the government.
The minister said he agreed with the spirit of the regulation that went into force on Wednesday — to stabilize the rupiah amid volatility in the financial markets — but said players in the energy and mineral resources sector had called for a transition period for the full implementation of the policy.
“We and Bank Indonesia have agreed that in the next six months, we will set out three transaction categories. We will issue an implementing regulation as guidance for the business community,” Sudirman said in Jakarta on Wednesday.
The central bank has issued a regulation that makes it mandatory for all financial transactions in Indonesia to use the rupiah.
The regulation, announced on March 31 and effective as of July 1, requires all cash and non-cash transactions — including for making payments, settlement of obligations and payrolls — made by corporations or individuals to be in the local currency. This regulation is a follow-up from a 2011 law.
Sudirman acknowledged that foreign-exchange transactions, particularly in the US dollar, remained high in the oil and gas, minerals, coal, renewable energy and electricity sectors.
He noted that the bulk of equipment for use in the oil and gas sector had to be imported, and hence paid for in foreign currency.
He pegged the alone value of transactions in this sector alone at up to $15 billion, of which only about half could feasibly be carried out in rupiah.
Sudirman said similar conditions prevailed in the mineral and energy sectors. “So it’s not really all that possible if every transaction is to revert to the rupiah,” he said.
The ministry and BI have identified three different types of transactions that must be treated differently, based on the degree of difficulty of switching to the rupiah as the default currency.
The first category includes transactions for office rent, housing, vehicles and salary payments for local employees. Sudirman said that for this category the central bank had provided a six-month transition period to fully transition to the rupiah.
The second category is for fuel purchases. “The policy will still respect existing contracts that have been signed [that use foreign currency], but after those contracts expire, any extensions must be in rupiah,” Sudirman said.
The third category includes transactions where a shift to the rupiah is seen as most difficult, including salary payments for foreign staff, drilling services, and boat hire.
“These are functional expenditures, so it’s not possible in these cases to pay in rupiah. Please continue with foreign currency. Companies must clearly identify these kinds of transactions,” the minister said.
The regulation stipulates that mandatory rupiah use does not apply for certain transactions, including acceptance of grants from abroad, international trading transactions such as exports and imports, bank savings in foreign currency, and international financing transactions.
Sanctions for violating the regulation include written warnings, penalty fees, or a prohibition against undertaking future financial transactions.
The rupiah has declined nearly 7 percent against the US dollar this year amid volatility in the financial markets triggered by the Greece crisis and the prospects of a hike in the US Federal Reserve’s key interest rate.
Investor Daily
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