Sun, 11 Jan 2009
From: The Jakarta Globe
By Ardian Wibisono & Dian Ariffahmi
Raw commodity exporters will soon be required to use letters of credit for their export transactions, which the government says will allow it to better monitor export payments in order to boost the country’s foreign exchange reserves.

Starting March 5, export payments will have to be paid into domestic local foreign exchange commercial banks. The regulation will also halt the practice of exporters receiving their payments from customers in overseas accounts.

Trade Minister Mari Elka Pangestu said the policy was a part of government efforts to ensure that exporters were paid on time. Exporters will also be able to quickly access funds for their working capital by using letters of credit as loan collateral or other trade financing incentives schemes provided by the government, she said.

Sadhana Priatmadja, the head of the international division of PT Bank Saudara Tbk, said banks would welcome the regulation as it would increase fee-based income from trade financing. The policy will also decrease exporters’ payment risk, he said, thereby reducing banks’ credit risk to exporters.

“If exporters are obliged to use letters of credit we will collect more fees,” he said.

The requirement for payments to be deposited in the domestic banking system would lead to an increase in Indonesia’s foreign exchange reserves, he said. However, exporters that already had secure established relationships with foreign buyers may hesitate to use the letter of credit if it increased costs, he said.

“With the regulation, exporters will have assurance on payments but the question is whether their buyers will agree to use the letters of credit, because it means an extra cost for them,” he said. “If the cost is too large, they might seek supplies from other countries, and this would decrease our exports.”

Toto Dirgantoro, the secretary general of the Indonesian Exporters Association, or GPEI, said that many exporters had been awaiting such a policy. He said they would welcome the introduction of letters of credit as long as they did not have to pay any additional fees.

Exporters subject to the regulation comprise those working in unprocessed primary products or processed goods such as coffee, crude palm oil, chocolate, rubber, mining commodities and tin plates.



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