Mar'ie's stance on credit<\/p>\n
The Minister of Research and Technology, B.J. Habibie, makes a
\nlot of sense in his argument about the crucial importance of
\nexport credits for pushing the sales of such high-tech and big-
\nticket products as aircraft. He was referring to the blunt
\nreality of the international marketplace when he contended on
\nMonday that nobody would pay cash for such high-tech products as
\naircraft and ships.<\/p>\n
But that is why none of the developing countries with per
\ncapita income of less than US$5,000 has ventured into the
\nproduction of commercial planes in the first place. Low and even
\nmiddle-income countries, let alone Indonesia with a per capita
\nincome of less than $700, simply do not have adequate financial
\nresources, the basic infrastructure, nor a sufficient base of
\nvendors, or parts suppliers, to back such high-tech industries as
\naircraft manufacture.<\/p>\n
In fact, that is precisely one of the basic points of view we
\nraised on this column on Nov. 10 in coincidence with the
\nlaunching of the prototype of the N-250 plane at the state IPTN
\naerospace company in Bandung.<\/p>\n
Therefore, Minister of Finance Mar'ie Muhammad's outright,
\nblunt argument against such a credit facility is quite
\nlegitimate. As Mar'ie frankly and sensibly admitted at a House of
\nRepresentatives' hearing on Tuesday, Indonesia, with its current
\neconomic condition, cannot afford to support the provision of
\nsuch a financing facility for buyers overseas.<\/p>\n
We find it hard indeed to comprehend how the Indonesian
\ngovernment, which is already one of the biggest sovereign
\nborrowers in the world, could provide export credits to foreign
\nbuyers. To our knowledge, export credits have so far been given
\nonly by financial institutions in the industrialized countries to
\nimporters or buyers from the developing countries. Even those
\ncredits are granted mostly by government-supported agencies and
\nare protected by official insurance coverage.<\/p>\n
What Habibie has proposed for the high-tech industries, such
\nas the IPTN aerospace company and the PAL shipbuilder under his
\nsupervision, is quite different from the export credit facility
\nprovided at concessional rates by the central bank (Bank
\nIndonesia) during the 1970s and 1980s. The export credits were
\nextended in rupiah for export trade financing and for the
\nproduction of goods for exports. Their maturity was very short,
\nonly one year at the longest. But even this facility was
\nterminated in 1990 due to extensive abuse and because credit from
\nthe central bank creates money, thereby causing inflationary
\npressures.<\/p>\n
The main difference is that export credits for the buyers of
\naircraft from IPTN, for example, will have to be provided partly
\nin foreign exchange because the aerospace company still depends
\nlargely on imported materials and components. Moreover, the
\nmaturity of such a facility usually ranges from three to five
\nyears.<\/p>\n
The provision of export credits is not a simple process
\neither. Because IPTN is still a small player, even in the Asian
\naircraft market, the creditworthiness of the potential buyers of
\nits aircraft requires thorough assessment. Then export credits
\nhave to be insured and the premiums have to be calculated
\naccording to the credit standing of the buyers. The interest
\nrates should be made competitive. Export credit agencies, or
\nstate-owned export-import banks in the developed countries, for
\nexample, offer annual interest rates of between six to eight
\npercent. Where could Bank Indonesia raise such cheap funds? Even
\nits certificates of deposits offer interest rates of as high as
\n13 percent a year.<\/p>\n
The required amount of credits also will pose a formidable
\nchallenge. Take, for example, IPTN's N-250 aircraft, which is
\nscheduled to be launched next year with a price tag of US$13.5
\nmillion per unit. Since Habibie has estimated that at least 260
\nunits have to be sold to reach the break-even point, that means
\nthe central bank would have to provide $3.5 billion in export
\ncredits to a single company.<\/p>\n
But in so far as IPTN is concerned, the availability of an
\nexport credit facility actually is only one of the key
\ningredients essential for pushing the sales of its aircraft. The
\nestablishment of a reliable after-sales organization is equally
\ncrucial and so is production efficiency. Unfortunately on these
\ntwo points, IPTN, despite its impressive achievements over the
\npast 19 years, needs to work harder to improve its international
\nreputation. The problem is that IPTN has advanced so much faster
\nthan the other sectors of the economy that it virtually operates
\nas an island without the support of local vendors or parts
\nsuppliers, which in foreign countries are the strategic partners
\nof aerospace companies.<\/p>\n
Given the complex process of assessing and providing export
\ncredits and the capability and the current condition of
\nIndonesia's economy, Mar'ie's blunt, outright rejection of the
\nproposal for export credits to foreign buyers is a very wise
\ndecision. In fact, that decision will further strengthen the
\npublic's confidence in the government's fiscal and monetary
\nmanagement. An ambiguous response to such an ill-timed idea might
\nprovide the wrong signal and cause unnecessary jitters among
\ndomestic and foreign investors and our creditors overseas.<\/p>",
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"sponsor": "Okusi Associates",
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