Revised regulation and circular provide more certainty for investors and borrowers, but continue to limit access to foreign capital for many Indonesian businesses.

Bank Indonesia, the Indonesian central bank (BI), recently issued amended regulations to explain and comment on the controversial offshore borrowing regulations that it originally issued in October 2014. While the amended regulations leave the key restrictions from the original regulations intact, they do clarify a number of practical concerns that borrowers and investors had raised, and provide some useful insights into how BI intends to implement the new restrictions on foreign borrowings. Key positive refinements include clarifying the calculation of the minimum hedging and liquidity ratios and the application of the minimum ratings requirement. Further questions remain, however, on the specifics of how BI will implement the amended rules.

Background -

On 29 December 2014, Bank Indonesia, the Indonesian central bank (BI), issued BI Regulation No. 16/21/PBI/2014 on the Implementation of Prudential Principles in the Management of Offshore Borrowing for Non-Bank Institutions (the Amended Regulation). The Amended Regulation, which came into effect on 1January 2015, revokes and replaces BI Regulation No. 16/20/PBI/2014 which BI issued on 28 October 2014 (the Original Regulation). We discussed the Original Regulation in our Client Alert published here. In addition, on 30 December 2014, Bank Indonesia issued Circular Letter No. 16/24/DKEM (the Circular Letter) to explain and comment on the implementation of the Amended Regulation.