Indonesian hotels, air tickets must be paid in rupiah from July

JAKARTA - Indonesia's central bank confirmed on Tuesday that a rule taking effect on July 1 means that hotel rooms, airline tickets, property leases and most salaries must be paid in rupiah, as part of a campaign to help prop up the weakening currency.

The rule banning use of US dollars for many domestic transactions was announced in April.

On Tuesday, Bank Indonesia (BI) provided more details on the regulation aimed at controlling onshore demand for dollars, thus easing pressure on the currency. "This is about our sovereignty," said Lambok Siahaan, special staff to the central bank's board of governors. "Excessive forex demand has an effect on our exchange rate and inflation."

Earlier on Tuesday, the rupiah briefly fell as low as 13,384 against the dollar, the weakest level since August 1998. BI said the timing of the Tuesday briefing had nothing to do with recent falls in the rupiah, which has lost nearly 7 percent this year and is emerging Asia's worst-performing currency.

Under the new rule, the central bank said, international firms will be allowed to continue paying expatriates in dollars if they were hired from abroad.

International trade and firms investing in power plants, roads and other strategic infrastructure projects will also be exempted. The central bank said it may also offer exemptions on a case-by-case basis for businesses in industries key to economic growth.

Indonesian companies must pay all of their workers in rupiah.

BI estimates around 10 percent of domestic transactions, with a total value of about $6 billion a month, are conducted in dollars.

Many businesses say they will effectively be hostage to gyrations in the volatile rupiah after the rule takes effect, and inflationary pressures could emerge as companies try to build in buffers to counter the loss of dollar certainty.

Some firms say they will still negotiate and price in dollars, then settle in the local currency.

BI said pressure from the rupiah's depreciation affects the inflation rate more than the buffers firms may make when exchanging dollar to rupiah.

Under the new regulation, hotels and restaurants will be allowed to post quotations in dollars for online promotions to attract tourists but everything must be paid for in rupiah.