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)