Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

INDONESIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of January 31, 2005)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: May 7, 1988.
Exchange Arrangement
CurrencyThe currency of Indonesia is the Indonesian rupiah.
Other legal tenderCommemorative gold coins are also legal tender but seldom circulate.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe exchange rate is determined by supply and demand conditions in the foreign exchange market. In an effort to reduce exchange rate volatility, Bank Indonesia (BI) imposes comprehensive restrictions on rupiah transactions between onshore banks and residents that limit each bank’s forward sale of foreign exchange to nonresidents.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketIf there is no underlying local investment activity, forward foreign currency contracts offered by domestic banks to nonresidents are limited to $3 million or its equivalent a customer. These restrictions do not apply to investment-related transactions, such as equity participation, purchase of securities, and provision of credit.
Arrangements for Payments and Receipts
Prescription of currency requirementsn.a.
Payments arrangements
Regional arrangementsIndonesia is a member of the ASEAN.
Barter agreements and open accountsThere are counter trade arrangements as part of bids for government-sponsored construction or procurement projects whose import component is valued at more than Rp 500 million.
Administration of controlThe Commercial Offshore Loan Team (COLT) has the authority to institute regulations regarding the commercial offshore borrowing of state-owned enterprises (SOEs), while BI has the authority to regulate banks’ commercial offshore borrowing. Effective December 21, 2004, banks and nonbank financial institutions (including SOEs, private enterprises, and cooperatives) are required to report all offshore commercial borrowing, while individuals are required to report commercial offshore borrowing of the equivalent of $200,000 or higher.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Measures have been taken to freeze the accounts and assets of and prohibit payments to listed individuals and organizations associated with terrorism, in accordance with the relevant UN Security Council resolutions.
In accordance with UN sanctionsRestrictions against countries on which the UN has imposed a trade embargo are in effect.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeTravelers may take out freely up to Rp 65,000 a person in Indonesian commemorative gold and silver coins issued in August 1970 and up to Rp 130,000 a person in gold and silver coins issued in October 1974; amounts in excess of these limits require the prior approval of the BI. Gold may be imported freely. Imports are subject to a levy of Rp 25 per $1.
Controls on exports and imports of banknotes
On exports
Domestic currencyTravelers are free to take out Indonesian notes and coins up to Rp 100 million a person. For amounts in excess of this limit, prior approval of the BI is required and a declaration must be submitted to customs.
On imports
Domestic currencyTravelers are free to bring in Indonesian notes and coins up to Rp 100 million a person. For imports of amounts in excess of this limit, prior approval is required and a declaration must be submitted to customs.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyNo checks may be drawn on foreign currency accounts.
Held abroadYes.
Accounts in domestic currency held abroadThese accounts are permitted with some limits.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Approval requiredOnly checking and time deposit accounts are permitted. No checks may be drawn on foreign currency accounts.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsRequirements generally are set by commercial banks on the basis of their assessment. Exporters, however, require banks to guarantee a 100% face value of red-clause LCs and advance payments.
Documentation requirements for release of foreign exchange for importsCement/asbestos sheets, dry batteries, steel slabs, low-voltage electric cords, and electric light bulbs are subject to quality control.
Domiciliation requirementsYes.
Letters of creditLCs may be issued by foreign exchange banks in the form of sight or usance LCs. Payment settlement under usance LCs and any changes in the due date of payment are based solely on agreements between the parties involved; previously, the settlement had to take place within 360 days.
Import licenses and other nontariff measures
Negative listImports from countries against which the UN has imposed a trade embargo are prohibited, as are imports from all sources of most secondhand goods and of certain other products. Secondhand engines, however, and their parts and other capital goods may be imported by industrial firms for their own use or for reconditioning, in accordance with the guidelines of the Ministry of Trade and Industry (MOT). Certain categories of agricultural imports, including foodstuffs, beverages, and fruits, may be imported only by registered importers designated by the MOT. The procurement policies of companies approved for the importation of fruit, alcoholic beverages, and chicken are evaluated annually by the government, although explicit quantitative restrictions are not placed on these products.
Effective January 1, 2004, an import ban applies on rice; initially imposed for a six-month period, it was subsequently extended for an indefinite period effective July 1, 2004.
Open general licensesThere is a registry of authorized importers that includes only Indonesian nationals, although foreign investors are permitted to import the items required for their own projects. Although all imports into Indonesia are subject to licensing requirements, most are classified under the General Importer License.
Import taxes and/or tariffsCertain products are granted preferential duties within the framework of the AFTA and the WTO. A 5% tariff applies to imports of capital goods and raw materials.
Taxes collected through the exchange systemImport taxes are collected through foreign exchange banks authorized by the MOF.
State import monopolyImports of certain goods remain restricted to approved importers, most of which are state enterprises. Petramina has a monopoly on the importation of lubricating oil and lubricating fats, and Dahana on the importation of ammunition and explosive gelatin. The monopoly rights of approved importers (sole agents) also remain in effect for the importation of certain heavy equipment and motor vehicles, although this right may be transferred to general importers. The importation of trucks is restricted.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirements
Letters of creditExports with sight LC conditions must be settled not later than 30 days from the date the exports are registered with the foreign exchange bank.
DomiciliationYes.
Preshipment inspectionExports of goods containing imported material that was exempt from import taxes must be examined before shipment.
OtherYes.
Export licensesExports are prohibited to countries against which the UN has imposed a trade embargo, as are exports to all countries of certain categories of unprocessed or low-quality rubber, brass and copper scrap (except from the island of Irian Jaya), iron scrap, steel scrap, and antiques of cultural value. Exporters are required to obtain trade permits issued by the MOT.
Without quotasExports of certain domestically produced commodities must have prior MOT authorization in order to meet domestic demand and to encourage domestic processing of certain raw materials. Items affected by such controls include clove seeds, logs, fertilizer, cement, iron for construction reinforcement, automobile tires, paper, asphalt, stearin, cattle, salt, wheat flour, maize, soybeans, rice, copra, olein, raw rattan, meat, and all goods produced from subsidized raw materials. Concern about domestic price stability sometimes leads to the suspension of exports of various items in this category.
With quotasManioc may be exported only by approved exporters. Textiles and textile products subject to import quotas in the consumer countries may be exported only by approved textile exporters, who may transfer their allocated quotas to other approved exporters through the Commodity Exchange Board.
Export taxes
Taxes collected through the exchange systemTaxes are collected through foreign exchange banks authorized by the MOF.
Other export taxesExport taxes ranging from the equivalent of $250 to $4,800 a cubic meter are applied to sawed and processed timber. Exports of logs are subject to taxes ranging from $500 to $4,800 a cubic meter. Certain processed wood products are not taxed. Certain other products are subject to export taxes ranging from 5% to 30%.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsResident banks are prohibited from conducting the following transactions with nonresidents: (1) lending or provision of overdraft in rupiah or foreign currency; (2) placing funds in rupiah with nonresidents, including rupiah transfer to banks abroad; (3) purchase of rupiah-denominated securities issued by nonresidents; (4) interoffice transactions in rupiah; and (5) equity participation in rupiah with nonresidents.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsForeign investors are allowed to purchase without limit shares issued by Indonesian companies in the Indonesian capital market. There is a limit on the ownership of a joint securities company that is a finance company.
Sale or issue locally by nonresidentsForeign companies are permitted to issue Indonesian depository receipts (IDRs) through custodian banks in Indonesia. IDRs are instruments that facilitate the trading of shares of foreign companies in the Indonesian capital market. Custodian banks in turn issue IDRs based on the shares that the foreign companies have in the custodian bank.
Sale or issue abroad by residentsNo controls apply as long as the shares are not listed on the Indonesian Stock Exchange (ISM). If those securities are listed on the ISM, they should comply with the Capital Market Act and with the requirement on the maximum percentage of foreign ownership of shares. However, Indonesian companies do not issue shares but rather American depository receipts in the U.S. capital market and global depository receipts on the London Stock Exchange.
Bonds or other debt securities
Purchase abroad by residentsYes.
Sale or issue abroad by residentsBanks are allowed to issue securities on primary capital markets, subject to regulations on offshore loans.
On money market instruments
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsThe regulations governing bonds and other debt securities apply.
Purchase abroad by residentsThe regulations governing bonds and other debt securities apply.
Sale or issue abroad by residentsBanks require approval from the COLT for issuance of instruments with maturities of over two years or for amounts exceeding the equivalent of $20 million a year a creditor; total issuances, however, should not exceed 30% of a bank’s capital.
On collective investment securities
Purchase locally by nonresidentsNo person may purchase more than 1% of any fund.
Controls on derivatives and other instrumentsDerivative transactions, other than those associated with foreign exchange and interest rates, are prohibited. Exception may be made by the BI for derivative transactions related to stock margins. Banks are obliged to enter into a written agreement with their clients and explain the risks of these transactions and also to submit a weekly report to the BI. Losses from derivative transactions exceeding 10% of each bank’s capital must be reported to the BI immediately. Forward and swap sales or option transactions involving selling foreign currency or purchasing foreign currency against rupiah by domestic banks to nonresidents are limited to the equivalent of $3 million a bank a customer. These controls do not apply to investment-related transactions such as equity participation, purchase of securities, and provision of credit. Banks are prohibited from maintaining derivative exposure transacted by the bank’s owners, directors, employees, commissioners, or any other party linked to the bank, as well as from extending credit facilities and overdrafts for the purpose of derivative transactions to the bank’s debtors.
Controls on credit operations
Commercial credits
By residents to nonresidentsResident banks are prohibited from granting credit (including overdrafts in rupiah or foreign currencies) to nonresidents.
To residents from nonresidentsResident entities, especially the nonbank private sector, may borrow from nonresidents; however, they have to submit periodic reports to the BI on their borrowing. The following are subject to approval by the Coordinating Minister of Economy: (1) borrowings related to development projects using nonrecourse, limited recourse, advance payment, trustee borrowing, leasing, and similar financing; (2) borrowings related to some development projects; and (3) borrowings related to the government or a state company (including the State Bank of Pertamina), including in the form of government equity participation or guarantee for provision of feedstock supply.
Financial credits
By residents to nonresidentsThere are limitations on the granting of credit by banks to nonresidents
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsBanks are allowed to provide sureties and guarantees to nonresident entities only under the following conditions: (1) when there is sufficient contra guarantee from bona fide overseas banks (excluding overseas branches of the relevant bank); and (2) when there is a cash deposit valued at 100% of the guarantee granted.
Controls on direct investment
Inward direct investmentSeveral sectors are controlled: (1) foreign investment companies in infrastructure projects such as seaports; electricity generation, transmission, and distribution for public use; telecommunications; shipping; airlines; potable water supply; public railways; and nuclear electric power generation should be established by way of joint venture between foreign and Indonesian partners, and the share of Indonesian partners should be at least 5% of the total capital issued at the outset of the company; and (2) a foreign investment company may be established as a straight investment, which means that 100% of the shares may be owned by a foreign citizen and/or entities. However, some of the company’s shares must be sold to Indonesian citizens and/or entities through direct placement and/or indirectly through the domestic capital market no later than 15 years after the commencement of commercial operations.
Foreign ownership of direct investments must begin to be divested by the eleventh year of production. For investments above $50 million or its equivalent, divestment of 50% must be completed within 20 years. For smaller investments, the divestment requirement is less stringent.
All foreign enterprises are eligible to receive preferential customs duty treatment for imports of required raw materials for the first two years of production activity. Raw materials may be imported with no time limit. In addition, an enterprise exporting more than 65% of its production is free to hire foreign experts as needed to meet its export commitments.
Income tax holdings for up to eight years are granted to newly established corporations in 22 industrial sectors.
Takeovers of nonstrategic operations by foreign investors are permitted without government approval.
Controls on liquidation of direct investmentInvestors are granted the right to repatriate capital, to transfer profits (after settlement of taxes and financial obligations in Indonesia), and to make transfers relating to expenses connected with the employment of foreign nationals in Indonesia and to depreciation allowances. No transfer permit is issued for capital repatriation as long as investment benefits from tax relief are being received; at present, however, foreign payments do not require a transfer permit.
Controls on real estate transactions
Purchase locally by nonresidentsNonresidents are not allowed to buy real estate. However, they are permitted to engage in inward direct investment in local real estate.
Sale locally by nonresidentsYes.
Controls on personal capital transactionsNo.
Provisions specific to commercial banks and other credit institutionsResident banks are prohibited from conducting the following transactions with nonresidents: (1) lending or provision of overdraft in rupiah or foreign currency; (2) placing funds with nonresidents; (3) purchase of rupiah-denominated securities issued by nonresidents; (4) interoffice transactions in rupiah; and (5) equity participation in rupiah with nonresidents. Effective January 20, 2005, banks are prohibited from owning assets in the form of stock or securities with an underlying reference stock.
Borrowing abroadThe COLT supervises all foreign commercial loan transactions. Its prior approval is required before any commercial bank may accept a loan from abroad. Banks may receive foreign commercial borrowing with maturities of no more than two years in an amount not exceeding the equivalent of $20 million a creditor on a bilateral basis without prior approval from the BI, but the banks must maintain the total amount of such borrowings at or below a maximum of 30% of their capital. Trade financing, such as the issuance of LCs, red-clause LCs, and supplier’s and buyer’s credits with maturities not exceeding one year and amounts of less than $20 million, is not considered borrowing requiring approval from the COLT. Effective January 10, 2005, short-term borrowings (maturities of up to one year) by banks are limited to 30% of bank capital and long-term borrowings (maturities of over one year) by banks require approval by the BI. Effective January 10, 2005, banks are required to observe a daily limit on short-term offshore loan (STOL) balances of 30% of capital, excluding loan balances arising from (1) STOLs from controlling shareholders for liquidity support; (2) operating funds of a foreign bank branch in Indonesia of up to 100% of declared operating funds; (3) current and saving accounts and time deposits held by foreign country representatives and international institutions; and (4) current accounts held by nonresidents for investment activities in Indonesia.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeBanks are permitted to lend locally in foreign exchange. Banks may also purchase locally issued securities denominated in foreign exchange, subject to the requirement that the securities must be investment grade and should not be issued by their groups. To do this, banks should take into account other exchange regulations, namely the regulation on net open position aimed at prudential control.
Purchase of locally issued securities denominated in foreign exchangeThis is allowed; however, transactions are limited by open position limits.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsDeposit accounts in foreign exchange are subject to a 3% reserve requirement. Effective June 28, 2004, accounts in rupiah are subject to a reserve requirement in the range of 5% to 8%, depending on the total amount of deposits (previously, 5% of total deposits).
Investment regulations
Abroad by banksBanks may invest, within certain limits, only in financial institutions, including businesses that operate in financial services, such as leasing, venture capital, securities underwriting, insurance, and clearinghouse settlement institutions.
In banks by nonresidentsEquity participation of foreign banks in a joint bank can reach 99%. Foreign legal entities have to obtain a recommendation from the monetary authorities of their country of origin. Such a recommendation should at least include information that the foreign legal entity has a good reputation and sound financial ability and has never committed any unethical act in the banking business.
Open foreign exchange position limitsBanks must maintain a maximum overall on– and off–balance sheet position and on–balance sheet net open position, both intraday and end-day, of 20% of capital. Effective July 15, 2004, for banks that are required to incorporate market risk in the calculation of capital, the maximum net open position is 30% of capital.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsInsurance and reinsurance companies licensed in Indonesia are not allowed to invest abroad except for private placement in companies conducting insurance business overseas, such as insurance companies, reinsurance companies, insurance brokers, loss adjusters, etc. Indonesian mutual funds are prohibited from investing abroad.
Limits (max.) on investment portfolio held abroadLiabilities of insurance and reinsurance companies denominated in foreign currency exceeding assets denominated in foreign currency may not be more than 10% of shareholders’ equity.
Other controls imposed by securities lawsYes.
Changes During 2004
Arrangements for payments and receiptsDecember 21. Banks and nonbank financial institutions (including SOEs, private enterprises, and cooperatives) were required to report all offshore commercial borrowing, while individuals were required to report commercial offshore borrowing of the equivalent of $200,000 or higher.
Imports and import paymentsJanuary 1. An import ban was imposed for six months on rice.
July 1. The import ban on rice was extended indefinitely.
Capital transactions
Provisions specific to commercial banks and other credit institutionsJune 28. Deposit accounts in rupiah were made subject to a reserve requirement in the range of 5% to 8%, depending on the total amount of deposits (previously, 5% of total deposits).
July 15. Banks that were required to incorporate market risk in the calculation of capital were made subject to a maximum net open position of 30% of capital.
Changes During 2005
Capital transactions
Provisions specific to commercial banks and other credit institutionsJanuary 10. Short-term borrowings by banks were limited to 30% of bank capital. Longterm borrowings (maturities of over one year) by banks required approval by the BI.
January 10. Banks were required to observe a daily limit on STOL balances of 30% of capital, excluding loan balances arising from (1) STOLs from controlling shareholders for liquidity support; (2) operating funds of a foreign bank branch in Indonesia of up to 100% of declared operating funds; (3) current and saving accounts and time deposits held by foreign country representatives and international institutions; and (4) current accounts held by nonresidents for investment activities in Indonesia.
January 20. Banks were prohibited from owning assets in the form of stock or securities with an underlying reference stock.

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