From July 1st, Indonesia has made it mandatory for the rupiah to be used for all transactions in the country, from booking a hotel room to paying rent, in a move to shore up the currency.

The rupiah is the second-worst performing currency in Asia this year after the Malaysian ringgit. Yesterday, it closed at 13,339 to the US dollar. Over the last few weeks, it has fallen to levels not seen since the financial crisis in August 1998.Those who flout the regulation can be fined at least 1 per cent of the value of the illegal transaction or up to 1 billion rupiah (S$100,000).

There are exemptions, such as transactions related to the state Budget or international trade, the central bank said in a statement.

Singapore companies with operations in Indonesia say they have made arrangements to comply, noting that the regulation had been floated since 2011 but not fully enforced. "For Kendal Industrial Park, land sales are transacted in rupiah that are determined by US dollar exchange rates. As we are allowed to convert from rupiah to US dollar any time, there is minimal exchange rate exposure for us," said Mr Kelvin Teo, chief executive officer of Sembcorp Development, referring to its industrial zone in Central Java.

From today, Singapore Airlines will accept payments in rupiah only and its air tickets would show both the fare in US greenback and the equivalent amount in rupiah using the daily exchange rate issued by Bank Indonesia, said its Indonesia public relations manager Glory Henriette. But this will not be possible in certain cases.

"Many backend systems are currently unable to support transactions of more than 100 million rupiah," she said, referring to how fares that have more than nine digits cannot be reflected on the ticket. While some say the govern- ment's move could realise the short-term goal of increasing the use of the rupiah, others are concerned it could result in unintended consequences, such as companies hiking prices to avoid absorbing losses from a volatile rupiah.

Mr Bill Sullivan, a Jakarta-based legal adviser to the mining as well as oil and gas sectors, said that while the day-to-day transactions could proceed smoothly, relying on a volatile currency may not give an accurate measure of performance for Indonesia-based executives of multinational corporations whose performance globally is ranked in US dollars.

There is still some uncertainty over currencies to be used on e- commerce sites, but some observers say sites that sell Indonesian services such as hotel bookings but are not based in Indonesia can still charge in a foreign currency.

Mr Danny Oei Wirianto, co-founder of social media MindTalk, and who was chief marketing officer of Indonesia's largest online forum, Kaskus Networks, welcomed the mandatory move.

"After all, it is the currency of the country," he said, adding that it could help boost the economy.

But he is sceptical whether all companies will comply.

Mr Franky Sibarani, chief of the Indonesia Investment Coordinating Board, told The Straits Times  that many investors raised concerns over the lack of clarity surrounding the exemptions.

He said he would raise the matter with the central bank and see how to allow reasonable leeway.

"Say, for example, a vessel approaches our port. Do we really expect them to have rupiah, or international currency like the US dollar? We can't possibly have money changers on standby - it's not practical," he said.

Summing up, Mr Sullivan said: "This rule is dealing with only the symptoms of the problem, not tackling the wider issue... (which is) the erosion of investor confidence."

Source : Straitstimes