Bank Indonesia is to apply a fine to onshore transactions conducted in foreign currencies from next month as the monetary authority attempts to stem a decline in the rupiah, which has tumbled to a 17-year low.
The central bank is to require all trades between domestic parties within Indonesia to be conducted in rupiah and forbids companies from refusing payments in the local currency, it said in a circular letter dated June 1 and effective from the same date.
The ruling is to apply a fine of 1 percent of any transaction that breaks the conditions, or as much as 1 billion rupiah (US$75,200), according to the statement.
Some companies pay employees in US dollars, and some rents are also charged in the currency.
Bank Indonesia estimates that such transactions between domestic parties amount to US$12 billion per day, Bank Indonesia Director Nanang Hendarsah said in an interview on Wednesday.
The rule is the latest in changes the central bank has made to stabilize the rupiah, Asia’s worst-performing currency this year, following earlier requirements for companies to hedge foreign-currency debt and relaxations on selected derivatives.
“I don’t think the scale of these transactions is large enough to have an impact on the macro-level or the interbank exchange rate,” BNP Paribas SA Singapore-based head of foreign exchange strategy Mirza Baig said. “We feel that the big focus that policymakers are making on these things is a real distraction from real issues.”
The requirements for rupiah use exclude transactions for the state budget, funding grants from overseas parties and international trade, according to the statement.
It also exempts banking activities including foreign-currency loans and bonds, as well as interbank transactions.
The central bank might exempt some trades related to funding for infrastructure activities.
Separately, Japanese corporate bankruptcies linked to a weak yen rose for a 17th straight month, underscoring damage to small and medium-sized companies from Japanese Prime Minister Shinzo Abe’s reflationary policy.
Thirty-seven of the companies that failed last month cited the weaker currency as a contributor, bringing the total number of bankruptcies this year associated with the yen to 196, according to a survey by Teikoku Databank Ltd.
Failures related to foreign exchange rose 37 percent last month from a year earlier.
The surge in bankruptcies reflected the rapid decline in the yen following the Bank of Japan’s boost in monetary easing in October, according to corporate credit research company Teikoku.
CSP Corp, a clothing maker and retailer, filed for bankruptcy on May 29 with liabilities of about ¥1.5 billion (US$12.02 million), Teikoku said.
The Hyogo-based company, founded in 1986, sold casual wear such as floral T-shirts for young women under the CHU XXX brand.
The yen’s drop since October last year pushed up CSP Corporation’s production costs in South Korea and China, hurting income.
With sales already slowing after a rapid expansion, this pushed the company into bankruptcy, according to Teikoku.
Trident Co, a wholesaler of sports shoes and sandals was damaged by the yen’s strength of recent years and the currency’s swift depreciation more recently.
It had about ¥4 billion of liabilities when it filed for bankruptcy on April 14.
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