Indonesia's bond market is open to both foreign and local investors. Regulations for the protection of bondholders are discussed in this section.

Investor Participation - Retail Investors

In May 2006, the Ministry of Finance (MOF) issued regulations on the sale of government retail bonds in the primary market that were designed to encourage demand for smaller denomination bonds to create a wider investor base and increasing market liquidity.

In July 2006, the Government offered its first retail bonds, which were sold directly to individual investors in lots of IDR5 million, as opposed to the previous minimum bond purchase of IDR1 billion. The general terms, requirements, and procedures for investing in government retail bonds can be found by following the links provided below.

Investor Participation - Foreign Investors

Foreign investors have the right to repatriate capital and profits at the prevailing exchange rate. There are no restrictions on foreign investors owning Indonesian government bonds.

In 2002, Bank Indonesia (BI) introduced measures restricting Indonesian banks from conducting rupiah transactions with nonresidents (BI Regulation 4/8/2002). Nonresidents include foreign citizens, foreign institutions, Indonesian citizens who have permanent residence status in a foreign country, representatives of foreign countries and international institutions in Indonesia, foreign representatives of international organizations, and overseas offices of banks or other Indonesian institutions.

Local banks are prohibited from the following transactions with nonresidents: transferring rupiahs to offshore banks for any reason other than payments related to economic activities; providing credit (rupiah or foreign currency), overdrafts, fund placements in rupiah, purchases of securities in rupiah issued by nonresidents, inter-office transactions in rupiah, and equity participation in rupiah.

Links are provided below to the relevant BI circular and regulations.

Investor Protection

Market activities such as fraud, market manipulation, and insider trading are prohibited by the Indonesian Capital Market Law and the rules of the Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK).

In December 2006, BAPEPAM-LK issued new rules to improve transparency in corporate bond markets by mandating that the issuers of corporate bonds grant increased access to authorities, rating agencies, and investors on their bond ratings and other bond-related information.

In addition, BAPEPAM-LK signed a memorandum of understanding with the Corruption Eradication Commission in December 2006 to strengthen anti-corruption policies in capital markets. The agreement will allow the two institutions to share information, conduct training of personnel, update information on government officials’ assets, and coordinate the performance of their respective institutions.

Despite regulations on foreign currency transactions, Indonesia’s capital markets are relatively open to nonresident portfolio investments. There are no limits on forward foreign currency contracts between domestic banks and nonresidents for buying securities or debt.

The Annual Report on Exchange Arrangements and Exchange Restrictions, which is published by the International Monetary Fund (IMF), provides a summary of the relevant regulations (available in hard copy only).

Capital Inflow

Nonresidents may invest in local money market instruments or Indonesian corporate equities without limits, with the exception of shares in finance company joint ventures.

Foreign investor participation in the local bond market is subject to regulatory approval. Nonresidents may not purchase more than 1% of an investment fund.

Capital Outflow

Residents may invest in money market instruments, bonds, and other securities abroad. Although nonresidents are allowed to issue rupiah-denominated securities, resident banks may not invest in them.

There are no restrictions on the repatriation of capital or profits, although they must be reported. Proceeds from equity transactions can be remitted abroad and converted into the original currency of investment.

Licensed insurance and reinsurance companies may not invest abroad except in private placements with insurance companies doing business overseas.

Indonesian mutual funds are not allowed to invest abroad.

Certain investment restrictions apply to pension funds. The Ministry of Finance’s (MOF) Decree No. 78 KMK017/1995 states that the investment of pension funds must be directed towards the following: (i) bank time deposits and certificate-of-time deposits, (ii) corporate shares and bonds as listed on the Indonesia Stock Exchange (IDX), (iii) promissory notes,(iv) corporate equities, and (v) land and buildings.

A pension fund’s investment in corporate shares and bonds has a maximum allotment of 20%, while other types of investments have a maximum allotment of 10%.

Insurance companies are also allowed to make offshore investments, but such investments should be no more than 20% of their total assets.

Indonesia maintains a managed-float exchange rate regime for the Indonesian rupiah (IDR). Bank Indonesia (BI), the central bank, governs the foreign exchange system. It focuses on regulations for decreasing speculative capital flows that impact IDR volatility.

Import and Export of Currencies

Domestic Currency -- BI approval is required and a custom declaration must be submitted for importing or exporting local currency notes and coins above IDR100 million.

Foreign Currency -- In general, there are no restrictions on the amount of foreign currency that can be brought into or taken out of Indonesia either by residents or nonresidents.

Foreign/Domestic Currency Accounts

Resident Accounts -- Residents may hold foreign currency accounts abroad without restriction. Checking services are unavailable on foreign currency accounts held domestically by residents.

Nonresident Accounts -- There are no restrictions on nonresidents maintaining domestic currency accounts locally. However, nonresidents are only allowed to maintain foreign currency checking and time deposit accounts in Indonesia; funds are not allowed to be drawn on checks.

Lending/Borrowing

Domestic Borrowing -- There are no regulations on domestic borrowing by nonresidents, either in IDR or in foreign currencies.

Offshore Borrowing -- Residents may borrow abroad subject to the following restrictions:

• residents should submit periodic reports to BI on their borrowings; and
• borrowings from state companies and foreign investment companies should obtain BI approval, while all other foreign borrowings are only required to be reported to BI and Ministry of Finance.

The links below provide details on restrictions and reporting requirements.