Dealers to meet RI's central bank again on FX rules

Dealers to meet RI's central bank again on FX rules

JAKARTA (Reuters): Representatives of several foreign banks will meet Indonesia's central bank again on Monday to clarify foreign exchange curbs that are aimed at bolstering the rupiah but which have puzzled many market players.

The rules, announced last Monday, ban rupiah-denominated loans to non-residents and also affect foreign-exchange deals without any underlying investment purpose.

The bank introduced the measures to try to stamp out offshore speculation in the battered rupiah.

Although the rules do not prevent spot rupiah transactions between onshore and offshore parties, banking analysts say they will effectively kill offshore rupiah trade.

One foreign banker told Reuters on Sunday that banks submitted a list of detailed questions to the central bank late last week and that Bank Indonesia officials requested a meeting.

"They didn't understand all the questions, so we'll meet them on Monday," said the banker, who declined to be identified.

The rules have done little to boost the rupiah so far, which traded around 9,400/9,500 last week, down some 25 percent from its level of 12 months ago.

The banker expected a reply to the questions from the central bank, in the form of a circular, by this Friday at the latest.

He said the key questions submitted were:

-- Outstanding forward contracts. The central bank has said forward contracts agreed before the new rules took effect would be honored, but the banker said more detail was needed.

"This is the most important issue, especially for banks offshore. What exactly do they mean when they say honored? Will there be a grace period to close the deals or will they be allowed to run to maturity?" he said.

One of the new rules prohibits onshore banks from making a cumulative $3 million in forward deals with non-residents without underlying investment purposes, compared with a previous amount of $5 million.

-- Article 2/2b from the regulations banning "rupiah transfers" to banks abroad. The banker said it was still unclear exactly what this covered.

-- The precise definitions of non-residents.

Indonesia's central bank, which previously oversaw one of the emerging world's freest currency systems, has stressed it had no desire to impose capital controls to help the rupiah.

Some bankers have agreed that the new curbs were not really capital controls because the key function was to dry up the flow of rupiah offshore, and not hinder trade or investment or the repatriation of earnings in foreign currency.

Representatives of foreign banks previously sought clarification on the new rules at a meeting last Thursday.

But bankers have disputed the central bank's belief that speculation is a key cause of the unit's weakness.

They say the rupiah has mainly suffered from Indonesia's instability, foreign debt servicing by local corporates and the practice of exporters leaving hard currency earnings offshore.