Addressing export woes<\/p>\n
The latest foreign trade figures announced by the Central
\nBureau of Statistics earlier this week confirmed not only the
\nextent of the damage the financial meltdown has wreaked on the
\neconomy but also the numerous hurdles to exports which
\nbusinesspeople have long complained about.<\/p>\n
The 70-80 percent fall in the rupiah's value against the
\nAmerican dollar since January should have theoretically made
\nIndonesian goods much more price competitive in the international
\nmarket. The much cheaper rupiah should have greatly helped the
\ncountry to export itself out of the current crisis, but this has
\nnot happened. During the first nine months of this year, exports
\nof non-oil commodities rose by a mere 1.5 percent.<\/p>\n
The positive impact of the steep rupiah depreciation has been
\nnullified by numerous hurdles affecting the export industry. The
\nstring of riots in various provinces have discouraged overseas
\nimporters from making purchases from Indonesia. The punitively
\nhigh lending rates virtually closed the only source of working
\ncapital for factories. Most overseas banks have shunned letters
\nof credits (L\/Cs) issued by Indonesian banks due to the huge
\namount of corporate foreign debt overhang and the battered
\ncondition of the banking industry.<\/p>\n
The fact that imports have fallen by more than 40 percent
\nmeans that there are not enough empty containers available to
\nship exports. This has raised costs for exporters as freight
\nrates have risen as shipping companies charge for the delivery of
\nempty containers.<\/p>\n
The most devastating factor, however, is the virtual absence
\nof trade financing, which has forced many companies to either
\nclose their plants or operate far below designed capacities. The
\nmain problem is that most of the country's manufacturing plants
\nthat are oriented to the export market depend largely on imported
\nmaterials, parts and components. The falling rupiah is increasing
\ntheir needs for working capital loans at a time when most banks,
\nbeleaguered by huge piles of bad credits, are focusing on loan
\nrecovery rather than lending.<\/p>\n
Many businesspeople expected that the US$5.6 billion pledged a
\nfew months ago by foreign financing institutions to guarantee
\nlocal L\/Cs would help bolster exports by enabling local banks to
\nopen L\/Cs for the import of basic materials and components.<\/p>\n
Banks, however, remain reluctant to open L\/Cs for fear of
\nadding to their huge pile of bad loans. According to the Ministry
\nof Trade and Industry, only some $620 million of the $5.6 billion
\ntrade-financing package assembled by the government and foreign
\ninstitutions has been used by local banks. Only a small
\npercentage of the $620 million went to exporting companies.
\nNearly $485 million was tapped by the National Logistics Agency
\nfor importing basic food commodities and by Pertamina for fuel
\nimports.<\/p>\n
A very important element seems to be missing from the foreign
\ntrade financing package -- working capital loans for financing
\nproduction operations and export insurance, which has become more
\nessential in view of the increasing security risks in Indonesia.<\/p>\n
Realizing the weaknesses of a piecemeal approach, the
\ngovernment announced last week an integrated program for export
\ndevelopment that is embodied in a new export trade financing
\nagency currently undergoing final preparations.<\/p>\n
This agency is designed to provide not only export credit
\nfacilities and working capital loans with a subsidized interest
\nrate for exporters, but also provides guarantees for short-term
\nexport trade financing. On top of this, the agency also will
\nextend export insurance and operate as an export information and
\ndata center.<\/p>\n
In most other countries the role of such a financing agency is
\nconducted by an export and import bank, but since the state Bank
\nEkspor Impor Indonesia is being merged with three other state
\nbanks into a single entity, called Bank Mandiri, the government
\nwas forced to establish a completely new agency. This process
\nshould proceed quickly because the new agency is being formed
\nfrom one of the major private banks that were nationalized in
\nAugust. Most importantly, the export financing agency, though
\nowned by the government, should be run by highly qualified
\nprofessionals rather than bureaucrats.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/addressing-export-woes-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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