Indonesia issues new rules to revive use of corporate commercial paper

[JAKARTA] Indonesia's central bank issued new rules that would work as a guideline for non-bank companies to issue commercial paper as it aims to revive the use of such notes and diversify instruments in the financial market.

In a new regulation dated July 19, Bank Indonesia (BI) said a limited liability company will be allowed to issue promissory notes maturing in one year or less if it meets certain requirements, including a minimum capital and profitability.

BI will also allow trade of the notes in secondary market.

The notes could work as "an alternative short term funding" for firms, BI said in a statement late on Tuesday. The new rules will take effect on Sept. 4.

Previously, there were no rules barring companies from issuing promissory notes, but banks stopped buying and trading them in the money market after the Asian financial crisis in 1997-98 due to default risks, BI Governor Agus Martowardojo said last year when he announced the plan to revive the instrument.

As part of risk management under the new rules, companies offering commercial paper must present good financial statements in the last three years and be assessed by a rating agency. The paper would also have to be registered at BI.

Deepening of Indonesia's financial markets is a key focus of BI. The central bank has relaxed trading rules for some financial market instruments, including allowing banks to sell structured foreign exchange hedging products such as call spread contracts.

It has also tweaked rules on banks' reserve requirement ratio, hoping that they would park some of their excess money in market instruments rather than at BI.

Last year, it made a bold move to switch its benchmark policy rate from the 12-month reference rate to the 7-day reverse repurchase rate to try to fix what some analysts describe as Indonesia's dysfunctional and often volatile short-term money market.

REUTERS