Penalty eyed for rupiah physical transfer abroad

Penalty eyed for rupiah physical transfer abroad

JAKARTA (JP): Bank Indonesia Governor Syahril Sabirin said on
Monday that the government was proposing a penalty system for
the physical transfer of rupiah banknotes out of and into the
country in a bid to curb overseas counterfeiting of the rupiah
and speculation on the currency.

He said that the physical transfer of more than Rp 5 million
(about US$585) would be subject to penalty.

The measure would be included in the central bank bill
currently being debated in the House of Representatives.

"This is not a capital control because you are still free to
transfer any amount of money (nonphysically)," he told reporters
on the sidelines of a legislative debate on the central bank
bill.

He said that the new measure was aimed at curbing the rampant
counterfeiting of the rupiah and preventing overseas speculation
on the rupiah.

He declined to provide further details because the proposal
was still being discussed with other government officials.

Syahril said that the new measure would become effective when
the House passed the new central bank bill into law, which is
expected to occur later this month.

Under existing laws, physical transfers of more than Rp 5
million must be reported, but no penalties are imposed.

The House earlier passed a new law on the country's foreign
exchange system which states that the transfer of a certain
amount of rupiah and foreign exchange must be reported to the
central bank through commercial banks and financial institutions
appointed by Bank Indonesia.

The ruling was meant to monitor the flow of short-term capital
in order to prevent the current financial crisis from recurring
in the future.

The government will issue a decree stipulating the limit of
transferred funds which must be reported.

The proposed penalty aims to stop counterfeiting of the
rupiah, which has been rampant since the economic crisis began in
August 1997.

A Bank Indonesia official said in December last year that the
authorities had seized Rp 5.96 billion in counterfeit rupiah or
about 0.012 percent of the nearly Rp 50 trillion in circulation
during the first nine months of 1998. This represented the
highest amount of counterfeit money recorded by the central bank.

The new measure also seeks to stem the sort of massive outflow
of the rupiah which was seen during the onset of the financial
crisis, including the overseas transfer of rupiah following the
outbreak of bloody riots and unrest in May last year. There are
fears that such violence could reoccur during the upcoming
elections.

There is also a belief that rupiah which is transferred
overseas, particularly to Singapore, is used for speculative
transactions against the U.S. dollar. Such speculation makes it
more difficult for authorities to stabilize the local currency.

The rupiah has been trading at around Rp 9,000 against the
dollar over the past few months, compared to Rp 2,450 in July
1997 when the economic crisis first hit the country. (rei)