Indonesia adopts law on forex movement
Indonesia adopts law on forex movement
JAKARTA (JP): The House of Representatives passed on Tuesday a
bill that empowers Bank Indonesia to track the flow of foreign
exchange in and out of the country.
The bill requires individuals and legal entities to inform
Bank Indonesia, or other parties appointed by the central bank,
of the transfer of stipulated foreign exchange or rupiah currency
amounts in and out of the country.
Banks and other entities involved in foreign exchange
movements are also required to report the transactions to the
central bank.
The system, however, will be voluntary, as the bill does not
stipulate any penalty for those who do not report their foreign
exchange or rupiah transfer in and out of Indonesia.
Finance Minister Bambang Subianto said the foreign exchange
monitoring law was not designed to impose capital controls in the
country.
He reiterated the government was committed to maintaining an
open capital account.
"This bill maintains the free foreign exchange system (which
has been adopted since 1970), with improvement in the monitoring
on foreign exchange flows," Bambang told the House's plenary
session.
Bank Indonesia Governor Sjahril Sabirin said after the plenary
session, the central bank would not limit the transfer of
currencies as the country still adopts the free foreign exchange
criterion.
"The only restriction is that foreign exchange transactions
must be reported," he said.
He said a decision would be made soon on the transfer amount
to be reported.
Spokespersons from the House's four factions -- the ruling
Golkar, the Armed Forces, the United Development Party and the
Indonesian Democratic Party -- hailed the law as a means to
safeguard the country from negative impacts of the free foreign
exchange regime.
"The free foreign exchange regime needs to be supported by a
foreign exchange monitoring system to ensure the availability of
information on every foreign exchange transaction in Indonesia,"
Golkar faction spokesman Abdul Karim Hanggi said.
The foreign exchange monitoring bill was controversial since
its drafting stage, as some foreign market players speculated
that Indonesia would restrict capital flows.
The bill was drafted after Indonesia witnessed massive capital
flight after the Asian crisis hit the region in July 1997.
The government, with the support of the International Monetary
Fund, has been working on the new law for some time, as a means
to obtain a better idea of the amount of foreign currency flowing
in and out of the country.
Bambang said accurate information about foreign exchange flows
would enable Bank Indonesia to design a better monetary policy to
maintain the stability of the rupiah exchange rate and contain
inflation.
With the passage of the foreign exchange monitoring bill, Law
No. 32/1962 on foreign exchange movement is nullified. However,
the bill stipulates that all supporting regulations will remain
in place as long as they do not contradict the bill.
The bill maintains an open capital account but does not
mention an exchange rate system for the rupiah. The bill leaves
the exchange rate decisions with the government in consultation
with the central bank.
The bill states the rupiah exchange rate systems that the
government can adopt are the fixed rate, the floating rate and
the managed floating rate. (rid)