Bank Indonesia suspends trade financing facilities

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)