Indonesia's central bank expects a $38 billion increase in foreign exchange reserves by the end of 2017, partly due to the government's flagship tax amnesty programme, its governor said on Thursday. The amnesty offers low penalty rates for taxpayers who declare previously untaxed assets at home and abroad. It was introduced to help the government to keep the budget deficit below the legal limit and expand the country's tax base.
As of Thursday, taxpayers had committed to return home almost $10 billion of money kept abroad. Under the amnesty, the returned funds must stay in Indonesia for three years. Governor Agus Martowardojo said based on Bank Indonesia's (BI) model, foreign exchange reserves could rise to $114.9 billion by the end of this year and jump to $151.5 billion by the end of 2017, from the $113.5 billion as of last month, partly because of inflows generated by the amnesty.
But he also warned that if the money does not go into the real economy, it could inflate asset prices. "If (the inflow) goes only into equity, bonds and property in a large amount, it can cause bubbles," Martowardojo said, adding that there are risks of capital reversal too after the lock-up period for returning funds ends.
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