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Indonesia: Central Bank Measures to Stabilize Currency

(Oct. 7, 2015) On September 30, 2015, Indonesia’s central bank, Bank Indonesia, announced new measures designed to stabilize the rupiah, the country’s currency. The Bank will issue certificates in foreign currency and also will intervene in the currency market, hoping to stem the fall of the rupiah, both in fact and in public perceptions about its future. (Bank Indonesia Unveils Measures Aimed to Stabilize the Rupiah, JAKARTA GLOBE (Sept. 30, 2015).)

The supply of rupiah in circulation will be reduced, while the amount of foreign currency in the country will be increased. In order to encourage sales of foreign currency, the Bank plans to raise the threshold by which a special document is required to complete such sales from US$1 million to US$5 million for each transaction. (Rupiah to Fall Further Despite Fresh Measures: UOB, NATION (Oct. 1, 2015).)

The rupiah is now at its lowest value internationally since 1998 and is considered the second-worst performing currency in what is described as “emerging Asia,” having lost 15% of its value against the U.S. dollar. (Bank Indonesia Unveils Measures Aimed to Stabilize the Rupiah, supra.) All the currencies of Southeast Asian countries, including the Thai baht and the Malaysian ringgit have declined in value this year. (Rupiah to Fall Further Despite Fresh Measures: UOB, supra.)

Earlier this year, Bank Indonesia put other measures in place, including changes to requirements for corporations with foreign currency debts and a requirement that the rupiah be used for all domestic transactions, whether or not they take place in cash. (Id.)

Comments on the Measures

Speaking about all the new measures, Perry Warjivo of the Bank said the focus “is to maintain rupiah stability, manage foreign exchange liquidity, and manage supply and demand for dollars.” (Bank Indonesia Unveils Measures Aimed to Stabilize the Rupiah, supra.) The head of foreign exchange for a Singaporean bank, Saktiandi Supaat, acknowledged that “[s]uch measures could go some ways to ease pressure on the rupiah in the near term,” but was of the view that “in the medium-to longer-terms, more far ranging reforms in the economic and financial realms are needed instead.” (Id.) An economist with the United Overseas Bank, Ho Woei Chen, predicted that the rupiah will lose more value, linking the situation of the currency to the general economic conditions in Indonesia. He noted the weak market for Indonesia’s commodities, together with other factors. (Rupiah to Fall Further Despite Fresh Measures: UOB, supra.)

Indonesia’s government has taken a number of measures designed to improve the overall economic situation in the country. A number of steps will be taken to deregulate aspects of the economy and to focus on increasing the competitiveness of industry, speeding up infrastructure projects, and raising the amount invested in the property sector. In addition, rules for foreigners opening bank accounts in Indonesia will be simplified. (Constance Johnson, Indonesia: Economic Deregulation Planned, GLOBAL LEGAL MONITOR (Sept. 14, 2015); Constance Johnson, Indonesia: Circulars Issued on Bank Accounts for Foreigners, Other Financial Services, GLOBAL LEGAL MONITOR (Sept. 18, 2015).)