Indonesia to withdraw rupiah from East Timor

JAKARTA (JP): Bank Indonesia plans to repatriate rupiah circulating in East Timor, under a joint operation with the UN administration in the newly independent state, which recently decided to use the U.S. dollar as its official currency.

Bank Indonesia deputy governor Miranda Goeltom said that roughly US$20 million worth of rupiah is still circulating in the former Indonesian province.

"We hope to withdraw the remaining rupiah from East Timor within the next six months," she said in a press meeting after the signing of the repatriation agreement with the UN Transitional Administration in East Timor (UNTAET).

Signing the deal was the UN Central Payments Office, which is the current monetary authority in East Timor.

The UN assumed a governing role in East Timor, after locals in the former province of Indonesia voted for independence in 1999.

Since January 2000, UNTAET introduced the U.S. dollar in East Timor as its only valid currency, replacing the rupiah and the Australian dollar which has also gained popularity lately.

Miranda explained that under the deal, UNTAET would collect rupiah from East Timor through local banks, and send the funds to Indonesia via Bank Indonesia's office in Denpasar, Bali.

Bank Indonesia will then validate the amount, upon which UNTAET will inject U.S dollars of an equal value according to market prices, into banks in East Timor.

"Actually, the repatriation agreement is only to allow UNTAET to bring rupiah in large amounts into Indonesia, which otherwise must be done through conventional channels," she said.

Under existing regulations, she said, repatriation of rupiah of over Rp 10 million requires the central bank's permission.

According to Miranda, much of the rupiah has already been repatriated through Kupang, East Nusa Tenggara since 1999.

General manager of the UN Central Payment Office Fernando DePeralto said his office would make direct currency exchanges on the streets to withdraw the rupiah that is not kept in banks.

"We will provide facilities to exchange the rupiah directly in a limited amount in each month of the six-month period," he said.

He admitted that the widely dispersed population of East Timor made it difficult to reach them as most banks were located in cities.

To overcome this problem, some foreign banks operating there offer mobile banking services: trucks that drive up to remote villages to bring the bank services, he explained.

Although UNTAET plans to complete the repatriation within six months, he added, an extension of the agreement is possible.

He said East Timorese still use the rupiah for their daily transactions, while Australian businesses there prefer their own national currency over the U.S. dollar.

"We pay the salaries of civil servants in U.S. dollars ... but many go out on the streets and exchange the dollar for the rupiah," DePeralto said.

To make the U.S. dollar more acceptable, UNTAET has brought in one U.S cent coins worth $10,000 into East Timor.

The administration plans to import $300,000 into the territory in the near future, with another $500,000 to follow.

DePeralto estimated that between $2 million to $3 million is already circulating in East Timor.

The rupiah repatriation with UNTAET brings no immediate benefit to Indonesia other than that it is in line with Bank Indonesia's regulation to limit offshore rupiah availability.

Miranda added Indonesia would enjoy an improved image from helping the transition of East Timor's nascent economy.

However, the rupiah repatriation deal also covered issues concerning assets and liabilities of Indonesian private banks in East Timor, the possibility of reopening their branches, and the central bank's assets in the territory. (bkm)