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.