BI to introduce penalty for forex monitoring

JAKARTA (JP): Bankers and businessmen who do not report their foreign exchange transfers into or out of the country will face jail terms, a senior official at Bank Indonesia said here on Monday.

The central bank director, Achjar Iljas, said on Monday that a provision on the penalty would be inserted in the bill on capital monitoring to be debated by the House of Representatives in April.

He said the penalty for those failing to provide appropriate information on the transaction of foreign currencies above a set amount would risk both imprisonment and fines.

"The result of the capital monitoring is expected to be much better with the penalty system," he told reporters on the sidelines of a debate session on a new central bank law between the government and the House's commission VIII on finance and the state budget.

The monitoring system was expected to be effective before June, he said.

Achjar stressed that introducing a penalty in the forex monitoring system was not a form of capital control.

"It will be a market-friendly measure," he said.

He explained that Indonesia would retain its open foreign exchange policy because the country was still a net importer of capital due to the large savings-investment gap.

"But we need information to be able to come up with an appropriate policy response," he said.

Achjar said the capital monitoring system would provide the government and the central bank with a database that could be used to design reliable fiscal and monetary policies.

He said the capital monitoring bill stipulated that all foreign currency and rupiah transfers of particular amounts must be reported to Bank Indonesia through banks or other institutions appointed by the central bank.

The central bank has yet to decide the lower limit for transactions to need reporting.

Achjar said there were plans to introduce a new computerized system to link the central bank other banks to enable the monitoring system to be effective and efficient.

"We have started a pilot project on several large banks," he said, adding that the computer system must also be compatible among the banking population.

"So whatever happens it will be immediately recorded," he said.

The country suffered a massive capital outflow in the wake of the August 1997 rupiah flotation, which caused the local currency to tumble by more than 75 percent in value against the U.S. dollar.

Some members of the Cabinet considered following Malaysia's adoption of a foreign exchange control system in September, including introducing an exit tax on outbound capital transfers.

The idea irked the International Monetary Fund, which is providing a multibillion dollar bailout package for Indonesia.

The government later agreed with to introduce a capital monitoring system while maintaining the open capital account policy.

In the latest letter of intent sent to the IMF, the government said the central bank was making progress toward establishing the monitoring system with the technical assistance from the IMF.

"A consultant from the statistics department of the IMF is to provide further technical assistance over the next three months, and the monitoring system is expected to be in place by June 1999," it said.

Asked to comment on the possibility of introducing a tax system as part of the monitoring mechanism, Achjar indicated that it could be an option. (rei)