Govt guarantee on L\/Cs extended<\/p>\n
JAKARTA (JP): Bank Indonesia deputy governor Dono Iskandar
\nDjojosubroto said on Wednesday that the government guarantee on
\nletters of credit (L\/Cs) issued by local banks had been extended
\nthrough December 2000.<\/p>\n
Dono said L\/Cs maturing in June 2001 would still be guaranteed
\nby the government via the central bank.<\/p>\n
\"Our economy has not yet fully recovered, so foreign banks
\nstill ask for guarantees. And our credit rating is still at a low
\npoint,\" he told a routine news conference.<\/p>\n
Dono explained that a guarantee was needed so that foreign
\nbanks would honor the L\/Cs issued by local banks for the
\ncountry's importers, many of which were also exporters importing
\nraw materials.<\/p>\n
\"With a government guarantee, foreign banks will not be afraid
\nof local banks defaulting,\" he said, but added that until now
\nthere had been no defaults except by banks closed down by the
\ngovernment.<\/p>\n
Foreign banks had refused to accept L\/Cs issued by local banks
\nafter several banks had difficulties repaying L\/Cs upon maturity
\nin the wake of the sharp plunge of the rupiah in 1998.<\/p>\n
The government then held talks with hundreds of foreign banks
\nin Frankfurt, Germany, in July 1998 to negotiate the reopening of
\nthe badly needed credit line to local banks.<\/p>\n
The banks, represented by a 12-member steering committee, then
\nagreed to reopen the credit line under the condition that the
\ncentral bank guaranteed the local L\/Cs.<\/p>\n
The agreement is part of the Frankfurt Agreement.<\/p>\n
But the guarantee scheme had to be revised after the Bank
\nIndonesia became independent in 1999 after which it could no
\nlonger provide credit to the government.<\/p>\n
Dono said that under the new guarantee scheme, it was the
\ngovernment that would guarantee L\/Cs via the central bank.<\/p>\n
He pointed out that the government made a US$50 million
\ndeposit at Bank Indonesia to allow the central bank to use the
\nfunds in case local banks defaulted on L\/Cs.<\/p>\n
He said that the government would increase the amount of the
\ndeposit if deemed necessary.<\/p>\n
Meanwhile, another Bank Indonesia senior official, Veronica
\nSulistyo, said the government had also imposed a penalty system
\nfor local banks failing to honor their L\/C obligations on time.<\/p>\n
Veronica said that if a bank defaulted, it would have to repay
\nthe amount plus interest to the central bank within three months.
\nThe interest rate would be 1.25 times the interest rate of Bank
\nIndonesia three-month SBI promissory notes.<\/p>\n
If a bank fails to make the repayment within the three months,
\nthe interest rate would be increased to three times the interest
\nrate of three-month SBIs.<\/p>\n
\"If a bank still fails to make the repayment, Bank Indonesia
\nwill withdraw its foreign exchange license,\" Veronica said.<\/p>\n
She said that without the guarantee scheme, local banks would
\nhave to pay a very high confirmation fee of between 8 percent and
\n9 percent to foreign banks.<\/p>\n
She said that with the guarantee scheme, the confirmation fee
\ncould drop to less than 1 percent.<\/p>\n
She said the confirmation fee during normal periods was less
\nthan 0.25 percent.<\/p>\n
Veronica also said that local L\/Cs confirmed by foreign banks
\nas of March 2000 totaled $2.4 billion.(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-guarantee-on-lcs-extended-1447893297",
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