Aussie to benefit from credit guarantees

Aussie to benefit from credit guarantees

SYDNEY (Dow Jones): Australia's cotton growers are confident they will be able to tap up to US$250 million in emergency export credit guarantees provided by the Australian government to facilitate trade with Indonesia, an industry official said.

Gordon Cherry, deputy chairman of the Australian Cotton Shippers Association, told Dow Jones he expects the government to provide the additional credit insurance cover through its Export Finance & Insurance Corp., or EFIC.

'We've had a facility approved by our government to assist us in exporting our crop this year to Indonesia,' which is the largest single export market for Australian cotton, he said. 'The finishing touches' are being applied now to satisfy all the parties involved, he added. 'It's very close' to being implemented.

The approval hasn't been formally announced. But Cherry said the government intends to make up to US$250 million available to growers through its so-called national interest account, a facility that is used in exceptional circumstances.

The granting of such exceptional guarantees is overseen by Australia's minister of industry, John Moore. A spokesman for the minister said he had no comment on the cotton facility. An EFIC official also declined to comment, saying such issues are commercially sensitive.

The financial turmoil in Indonesia has made commercial bankers reluctant to provide trade financing to the nation's importers.

That credit crunch, in turn, has brought trade in many industries to a halt. To help spur trade, the Australian government earlier this month agreed to provide up to A$380 million worth of additional export credit insurance to underpin wheat exports to Indonesia, which is a major buyer of Australian wheat.

That agreement, however, is subject to Indonesia providing a sovereign guarantee through its central bank, Bank Indonesia, on EFIC export cover made through the national interest account for any commodity including wheat.

On March 20, EFIC announced that Bank Indonesia has agreed to provide the guarantee. But under terms of the accord, each transaction must be approved by Indonesia on a case-by-case basis.

'It's really the Indonesian government, at the end of the day, that's going to be determining which commodities are covered under its guarantee,' said Slater Smith, EFIC's general manager of credit policy and risk management.

Assuming cotton is made a priority import, Cherry said the pool of US$250 million will more than cover this year's expected sales to Indonesia. Last year, Australia exported about 450,000 bales or 100,000 tons of cotton valued at around US$200 million. This year, Cherry expects sales to drop by between 20 percent and 25 percent in value terms due to lower prices as well as reduced demand for cotton in Indonesia.