On December 29, 2010, Bank Indonesia issued and revised Regulations on Foreign Debt Reporting Obligations (the "New Regulation")1. With the New Regulation, Bank Indonesia aims to improve and simplify the foreign debt reporting obligations applicable to Indonesian borrowers. The New Regulation is significantly broader in scope than the previous Bank Indonesia regulations on the topic2 (the "Previous Regulations") and has implications for a broad range of financial transactions involving Indonesian counterparties.
Indonesian borrowers which have raised foreign debt need to make
timely and accurate reports to Bank Indonesia. The reports must be
submitted at the latest on the tenth day (or the next business day
if falling on a Saturday or other holiday) of the next month
following the signing of the loan agreement, issuance of debt
securities and/or incurrence of trade credits and/or other loans.
In addition, there is also a requirement to submit monthly
realization reports showing the withdrawal and repayment of the
debt during the term of the debt, which must be submitted between
the first and the tenth day of each month.
The New Regulation significantly expands the definition of "Indonesian borrower", which now includes individuals (including Indonesians living abroad), legal entities or other entities domiciled in Indonesia. It also significantly expands the types of debt which require reporting, as follows:
- Loan agreements;
- Debt securities (including letters of credit, bankers acceptances, bonds, commercial paper, promissory notes and medium-term notes);
- Trade credit; and/or
- Other loans, which includes "all loans that do not fall under categories (a), (b) or (c)".
The main exceptions are two-step loans, savings accounts,
current accounts and deposit accounts. There is also a de minimis
exception for individuals with borrowing of less than
Reports of foreign debt filed with Bank Indonesia are confidential in nature and are subject to verification by Bank Indonesia. Failure to report on time is subject to an administrative fine of Rp.10,000,000 (about US$1,100) plus penalties.
The obligations imposed on Indonesian borrowers under the New Regulations are significantly more stringent than under the Previous Regulations. A strict interpretation of the rules would appear to require Indonesians to report almost any loan obligation to an offshore party. The expansion to Indonesians abroad is also significant - for example, an Indonesian citizen may be required to disclose a mortgage taken out to buy a property in Singapore! This seems very wide ranging, and it remains to be seen how it will be applied in practice.
Indonesian parties may be advised to analyse their offshore financial transactions for compliance with the new regulations. In particular it seems possible that favourable trading terms may be covered by the new regulations, as well as transactions such as derivatives and other financial products.
Offshore lenders doing business in Indonesia may also be advised to review their product range to ensure compliance with the New Regulation by their Indonesian counterparties. While the consensus view among Indonesian lawyers is that failure to comply with Bank Indonesia regulations is subject only to administrative sanctions for the borrower4, there have been examples in which failure to comply with a similar regulation has been held to affect the enforceability of the loan itself.5 Indonesia does not follow a strict doctrine of precedent and caution it is advised in this area as is possible that a similar finding could be made in the future.
Footnotes1 Bank Indonesia Regulation No. 12/24/PBI/2010
2 Bank Indonesia Regulation No. 2/22/PBI/2000, as amended by Bank Indonesia Regulation No. 11/17/PBI/2009
3 See Bank Indonesia Circular Letter No.12/19/Dint of 2010
4 Based on more recent Supreme Court cases such as Marubeni Corporation v. PT Indokaya Nissan Motors and Bank of America v. PT Starlight Prim Thermoplas
5 Earlier Supreme Court cases such as European Asian Bank v. Tegoeh Soetantyo and The Chartered Bank v. Lim Poh Hock
O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.