ASEAN KEY DESTINATIONS
Indonesian currency law creates uncertainty
According to the legislation, which will come into effect next May, all transactions in the country must be conducted in rupiah.
"That includes payments to expatriates who work here," Achsanul Qosasi, a Democratic Party lawmaker and vice chairman of House Commission XI, which oversees financial affairs, said on Sunday. "The foreigners are making money here, so it's only natural that they use our money."
If transactions are carried out in currencies other than rupiah, the law says, the penalty would be six months to a year in jail and a fine of Rp 5 million to Rp 200 million ($585 to $23,000).
The payee faces the same punishment if they refuse payment in rupiah, unless there is substantial doubt the notes are fake.
Foreign investors said the law would be difficult to enforce and threatened to hurt investors' confidence in the country.
"Payment for offshore manpower and offshore obligations will be very difficult and could result in contract violations," said James D. Filgo, a director at US company Consolidated Services International and a representative of the US Chamber of Commerce in Indonesia.
"The government has already shaken investor confidence by announcing its intent to review existing contacts, such as contracts of works for mining. There is disbelief among investors since the government of Indonesia rarely negotiates. It makes demands rather than making offers for something in return. That is a very bad sign for prospective investors."
Commission XI Deputy Chairman Harry Azhar Azis, a Golkar Party legislator, said the law, which was passed on Tuesday would not cause contract violations as it only affected the form of payment.
"Of course there are contracts in foreign currency, but as long as the transaction is in Indonesia, the payment must converted to rupiah," he said.
The only transactions that are excluded, he continued, were those related to the state budget, such as receiving grants from other countries or deals related to international trade.
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