All Transactions In Indonesia Must Now Be Done In Local Currency

New legislation introduced by the Indonesian government stipulates that all transactions in the country must be done in Rupiah.

London, UK (Pryce Warner International) June 8th, 2011 – From May of next year, any overseas Expat workers in Indonesia will now have to conduct all their financial affairs in Rupiah as well as receive their salary in the local currency.

This measure has been introduced by the House of Representatives as a means of strengthening the local currency and limiting the amount of money that is repatriated out of the country.

Anyone that does not carry out transactions in Rupiah will face a penalty of six months to a year in jail and a fine between $585 and $23 000. Anyone that refuses to receive a payment in Rupiah will face the same penalty unless there is substantial evidence that the money has been forged.

Several commentators have already pointed out that this will be difficult to enforce and will likely hurt investor confidence and lead to an overall reduction in the amount of foreign investment in the country.

Though this development will affect Expats more than anyone, some have suggested that foreign workers will simply move their finances offshore and work on a consultant basis to circumvent the law and continue to receive a salary in the currency of their choice.

Despite the principal rationale behind the law being to strengthen the standing of the Rupiah and the Indonesian economy both domestically and internationally, the potential loss of foreign investment may in fact have the opposite effect.

David Harra, a Senior Market & Investment Analyst with Pryce Warner International, a Financial Services Group for Expats worldwide commented: “The decision to demand all financial transactions in Indonesia be conducted in the local currency seems highly unusual and it is difficult to think of an equivalent law in almost any other country. Despite the aegis of the law being strengthening the currency and therefore the economy, it is hard to see how in practice anything other than the opposite can happen. Foreign investment and currencies create a host of jobs and services all of which help to strengthen the local economy and ensure that foreign workers are happy to move and work there. This law now means that setting up companies or investing in Indonesia will be much less appealing and it is possible that a lot of foreign investors will decide not to. Expats that are affected by this and concerned that it may damage their income should consult professional financial managers as there are a host of services that can ensure they continue to receive income in the currency of their choice or at least are covered from any potential loss of earnings.”

Pryce Warner International Group provide International Asset & Investment Management, Independent Financial Advice & QROPS Overseas Pensions.

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By: Aneil Fatania
Financial Editor
Pryce Warner International Group
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