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.