Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

INDONESIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: May 7, 1988.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
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.
Other security restrictionsRestrictions against countries on which the UN has imposed a trade embargo are in effect.
References to legal instruments and hyperlinksn.a.
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. However, the Bank Indonesia (BI) may intervene in the foreign exchange market to maintain stability of the exchange rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketIf there is no underlying local investment activity, forward contracts against rupiah offered by domestic banks to nonresidents are limited to $1 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.
Official cover of forward operationsn.r.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirementsn.a.
Payments arrangements
Regional arrangementsIndonesia is a member of ASEAN.
Barter agreements and open accountsThere are countertrade 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), and the BI has the authority to regulate banks’ commercial offshore borrowing. Banks and nonbank financial institutions (including SOEs, private enterprises, and cooperatives) are required to report all offshore commercial borrowing, and individuals are required to report commercial offshore borrowing equivalent to $200,000 or more.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
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 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 the BI’s approval 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, a declaration must be submitted to customs and a check on the authenticity of the rupiah is conducted at customs.
References to legal instruments and hyperlinksn.a.
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 prohibited.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
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.
References to legal instruments and hyperlinksn.a.
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 100% of the face value of red-clause LCs and advance payments.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementYes.
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.
OtherCement/asbestos sheets, dry batteries, steel slabs, low-voltage electric cords, and electric light bulbs are subject to quality control.
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. An import ban applies on rice.
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 gel explosives. 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.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirements
Letters of creditExports with sight LC conditions must be settled no later than 30 days from the date on which 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 quotasTo meet domestic demand and encourage domestic processing of certain raw materials, exports of certain domestically produced commodities must have prior MOT authorization. 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
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%.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsOnshore banks are prohibited from conducting the following transactions with nonresidents: (1) lending or provision of overdrafts in rupiah or foreign currency, except for noncash credit or guarantees pertaining to investment activities in Indonesia with certain requirements; (2) placing funds in rupiah with nonresidents, including rupiah transfers to banks abroad; (3) purchase of rupiah-denominated securities issued by nonresidents, except for securities related to export or import activities and bank drafts issued by overseas banks for the accounts of Indonesian workers overseas; (4) interoffice transactions in rupiah and interoffice accounts in foreign currency for provision of credit outside Indonesia; (5) equity participation in rupiah with nonresidents; and (6) rupiah transfers to an account held by nonresidents and/or a joint account held by a nonresident and a resident at a domestic or foreign bank, except for economic activities in Indonesia or between accounts held by the same nonresident.
Repatriation requirementsNo.
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). Securities listed on the ISM 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 U.S. depository receipts in the U.S. capital market and global depository receipts on the London Stock Exchange.
Bonds or other debt securities
Purchase locally by nonresidentsForeign investors may purchase government bonds issued in the primary market without limitation.
Sale or issue locally by nonresidentsn.r.
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 or other debt securities apply.
Purchase abroad by residentsThe regulations governing bonds or other debt securities apply.
Sale or issue abroad by residentsThe approval of the BI is required for issuance of instruments by banks with maturities of more than one year. Issuance of instruments with maturities of less than one year does not require approval; however, it 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 instrumentsDerivatives transactions are prohibited, except for those associated with foreign exchange and interest rates which are controlled. Banks are obliged to enter into a written agreement with their clients and explain the risks of these transactions and also to submit a daily report to the BI online. Banks are also prohibited from making losses from derivative transactions exceeding 10% of their capital; engaging in margin trading on foreign currency against rupiah; and maintaining derivative exposure transacted by the related parties of the banks. Forward and swap sales or option transactions involving selling to and/or purchasing from nonresidents foreign currency against rupiah by domestic banks are limited to the equivalent of $1 million a bank or a customer, except for hedging purposes with underlying investment-related transactions in Indonesia with a time frame of no less than three months, and for merchandise exports and imports using LCs.
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 borrowings are subject to approval by the coordinating minister of the economy: (1) related to development projects using nonrecourse, limited recourse, advance payment, trustee borrowing, leasing, and similar financing; (2) related to certain development projects; and (3) related to the government or a state company (including 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 a sufficient counterguarantee 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 a 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 establishment of the company; and (2) a foreign investment company may be established as a straight investment; that is, 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.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsOnshore banks are prohibited from conducting the following transactions with nonresidents: (1) lending or provision of overdrafts in rupiah or foreign currency, except for noncash credit or guarantees pertaining to investment activities in Indonesia with certain requirements; (2) placing funds in rupiah with nonresidents, including rupiah transfers to banks abroad; (3) purchase of rupiah-denominated securities issued by nonresidents, except for securities related to export or import activities and bank drafts issued by overseas banks for the accounts of Indonesian workers overseas; (4) interoffice transactions in rupiah and interoffice accounts in foreign currency for provision of credit outside Indonesia; (5) equity participation in rupiah with nonresidents; and (6) rupiah transfers to an account held by nonresidents and/or a joint account held by a nonresident and a resident at a domestic or foreign bank, except for economic activities in Indonesia or between accounts held by the same nonresident. Banks are prohibited from owning assets in the form of stock or securities with an underlying reference stock. A new regulation, effective January 30, 2006, (1) allowed consolidated risk management for banks performing control on subsidiary companies; (2) reduced the risk weighting of some of the banks’ assets (i.e., small business loan, 85%; house ownership loan, 40%; and employee or retirement loan, 50%), provided the loan has met certain requirements; and (3) required implementation of good corporate governance in commercial banks.
Borrowing abroadShort-term borrowings (maturities of up to one year) by banks are limited to 30% of the bank’s capital, and long-term borrowings (maturities of more than one year) by banks require approval of the BI. 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 savings 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 be investment grade and 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. Accounts in rupiah are subject to a daily reserve requirement in the range of 5% to 8%, depending on the total amount of deposits. The reserve requirements are raised by an additional 1% to 5% based on the loan-to-deposit ratio.
Liquid asset requirementsn.r.
Interest rate controlsn.r.
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 may 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. The maximum net open position for banks that are required to incorporate market risk in the calculation of capital is 30% of capital.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on investment portfolio held abroadInsurance 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.
Currency-matching regulations on assets/liabilities compositionLiabilities of insurance and reinsurance companies denominated in foreign currency exceeding assets denominated in foreign currency may not be more than 10% of shareholders’ equity.
Pension fundsn.a.
Investment firms and collective investment funds
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadIndonesian mutual funds are prohibited from investing abroad.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 30. A new regulation (1) allowed consolidated risk management for banks performing control on subsidiary companies; (2) reduced the risk weighting of some banks’ assets; and (3) required implementation of good corporate governance in commercial banks.

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