Bank Indonesia suspends trade financing facilities

JAKARTA (JP): Bank Indonesia (BI) has not provided pre- shipment and post-shipment trade financing facilities for exporters since a new central bank law became effective last month, according to a senior official at the bank.

Nana Supriatna, head of overseas relations at BI, said on Friday that based on the new law, the central bank could no longer channel such credit facilities.

But he said the post-shipment facility had only been temporarily halted to be replaced with a new scheme.

"We'll introduce a new scheme to replace the post-shipment facility," Nana told reporters at a gathering.

Through the pre-shipment credit facility, exporters could receive their projected forex revenue in advance from local banks at discount rates, even before their goods were shipped to export destinations.

A post-shipment facility is similar, but banks only pay exporters once the goods have been shipped to export destinations. Without such a facility, exporters had to wait longer to clear the letters of credit (L/C) opened by their buyers, often after the goods reached their destination.

The banks providing these facilities can claim the bill of exchanges from the central bank at a special rate. The facilities are designed to help exporters maintain their cash flow.

The new central bank law is designed to boost BI's independence.

Nana said that in addition to the two trade credit facilities, BI would also stop providing L/C guarantees in line with the new central bank law.

But he said BI would continue providing the guarantees until a government-appointed institution took over the role.

The L/C guarantees have been provided by the central bank since last year to help exporters import necessary raw materials after overseas banks rejected L/Cs opened at local banks in February and March, when confidence in the country's banking sector was at its lowest and the rupiah plunged sharply against the U.S. dollar.

BI organized a total of US$3.8 billion in L/C guarantee facilities, in which $1 billion was provided by the central bank, another $1 billion by Japan's Exim Bank (Jexim), and $2.8 billion provided by the government as a result of the June Frankfurt Agreement, in which Indonesia would guarantee the commercial risk of overseas banks in accepting local L/Cs as long as they also promised to resume credit lines for the local banks.

Nana said the government was planning to establish a non-bank institution, but to be called Bank Ekspor Indonesia, to assume the role of providing L/C guarantees.

He said BI was able to temporarily continue providing the L/C guarantees because the government provided a counter-guarantee in case local banks defaulted.

He declined to say when the new institution would take over BI's role.

"We're still waiting for a green light from Jexim," Nana said, pointing out that the Japanese bank first needed to study the new institution.

Nana said the utilization of Jexim's trade financing facility had been slow because of persisting problems with the local banking industry.

"Less than $2 million has been utilized," he said.

He also said the utilization of a trade financing facility provided by the government, amounting to $1.5 billion, was even lower due to the complexity of the financing scheme.

The government financing facility is provided by foreign institutions from the United Kingdom, Australia, Canada, and the U.S., which all stipulated that the L/C guarantee facility could only be used for importing commodities from those countries.

Nana pointed out that of the various overseas financing facilities, only the L/C guarantee from Australia had been partly utilized.

But he said that banks were expected to start channeling credit later this month after they have been recapitalized by the government.

"We expect that their lending would first focus on export- oriented activities," he said.

Nana said that the L/C guarantee scheme could only be enjoyed by export-oriented companies to finance the import of their raw materials.

He added that exporters had also to show a sales export contract, and feasibility approval from a commercial bank.(rei)