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Indonesia tightens rules for private offshore loans

Bambang Brodjonegoro, Indonesia's finance minister, listens during an interview at his office in Jakarta, Indonesia, on Wednesday, Oct. 29, 2014.

[JAKARTA] Indonesia's finance minister has issued a decree tightening a tax regulation related to companies debt-to-equity ratio in a bid to better manage private offshore loans.

Under the new rules, a company can no longer write off interest payments against taxable income if its debt is more than four times its equity, according to a decree uploaded on the ministry's website on Thursday.

The regulation does not apply for banks, financing companies, insurance firms, oil and gas companies with a special contract with the government or firms building infrastrucure.

The ministry also requires firms with offshore loans to report their debt to the tax office.

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The decree took immediate effect.

Firms in emerging markets have been taking more foreign loans since the global financial crisis, taking advantage of around seven years of near-zero US interest rates.

In Indonesia, private offshore loans rose more than two-fold in the last five years to US$169.7 billion as of June, according to data from the central bank.

With the rupiah losing more than 14 per cent this year, the costs of that debt has surged. Borrowing costs could increase further should the Federal Reserves decide to raise its interest rates for the first time in nine years later on Thursday.

To better manage currency risks, Bank Indonesia last year told private firms to hedge at least 20 per cent of their external debt within 3-6 months prior to maturity.