Export companies face L/C problems

Export companies face L/C problems

JAKARTA (JP): Export companies said yesterday local banks
still required them to pay high security deposits before issuing
letters of credit for imports despite central bank guarantee.

The chairman of the Indonesian Footwear Association, Anton J.
Supit, told members of the House of Representatives yesterday
that banks required companies to pay a security deposit worth the
total value of the letters of credit (L/Cs).

"Before the crisis, we only had to deposit 20 percent of the
L/Cs value at most, some did not have to pay at all," Anton said
after a hearing between House Commission V for trade and manpower
and the Indonesian Exporters' Federation.

"But now we have to pay 100 percent of the amount to the bank
as a security deposit," said Anton whose association's members
mostly import raw materials for shoe production.

"We would not mind paying, but we do not have the money," he
said.

Without letters of credit companies could not buy raw
materials and might not be able to supply their international
buyers on time, he said.

He said the exporters would risk losing their buyers if they
did not meet promised delivery dates.

International confidence in crisis-hit Indonesia has eroded as
the rupiah tumbled against the dollar, losing over 75 percent of
its values since last July.

Foreign banks are reluctant to take L/Cs issued by Indonesian
banks fearing the latter will be unable to service their
commitments.

Singapore Prime Minister Goh Chok Tong has proposed
establishing a multilateral committee to guarantee letters of
credit issued by Indonesian banks to help Indonesia finance vital
imports.

Bank Indonesia announced late last month that it would fully
guarantee rupiah and foreign exchange claims on locally-
incorporated banks from depositors and creditors.

However, Anton said the central bank did not guarantee
importers would get L/Cs from local banks.

Bank Indonesia would only cover local banks if they could not
service matured L/Cs, he said.

He said the sharp fluctuation of the rupiah forced banks to be
very austere with their letters of credit because they feared
they would lose money if they covered the companies first.

"Suppose they cover companies for a L/C while the rupiah is
10,000 to the dollar, and by the time the companies pay for the
L/C the rupiah strengthens to Rp 5,000,"

"The banks would suffer losses in foreign exchange," he said.

He said the rupiah must be stabilized at any level to improve
the bank's confidence in importers.

The federation also urged the government to provide special
guarantees for companies with decent reputations and good trade
records to able them to obtain letters of credit from local banks
without having to pay a high deposit.

"There must be a breakthrough measure that can help while the
situation is not normal like this," he said. (das)