A government regulation requiring exporters of commodities to have letters of credit (L/C) for the shipment of goods worth over US$1 million has been delayed.
Trade Minister Mari Elka Pangestu said Thursday the postponement of the regulation - which aims to ensure flows of foreign exchange - was needed to give more time to the commodities exporters to make adjustments regarding their payment mechanisms for shipments.
The regulation was supposed to be effective as of March 5.
“After receiving inputs from the stakeholders, we decided to postpone and revise the regulation. The revision obliges mining, tin and crude palm oil exporters to start using L/Cs for transactions over $1 million per shipment starting April,” Mari said.
For other commodities including cocoa, coffee and rubber, the new requirement will start Sept. 1.
An L/C, usually issued by a bank, is a contract that binds a customer to complete the payment in a specified period and for a specified sum.
“However, all of the exporters are still obligated to report their payment methods and export figures,” said Mari, adding that the letter-of-credit requirement “will loosen the flow of foreign exchange from exporters’ proceeds.”
With flows of foreign exchange into the country from such exporters ensured, Indonesia’s financial system could benefit from strengthened forex reserves - one of the key factors to bolster confidence in the rupiah, which has been shaky of late.
The country’s forex reserves currently stand at about $50.9 billion.
The Indonesia Mining Association (IMA) executive director Priyo Pribadi Soemarno, while he welcomed the revision, he said there were some issues which still needed to be resolved despite the revision.
Priyo projected that the value of mining exports, which previously averaged above $10 billion per year. would fall by 30 to 40 percent to $6 billion amid the current global crisis, and said that implementation of the new regulation could reduce the export value even more.
“Another issue is that most of the exporters are contractually bound with off-shore loan institutions. Those institutions want the exporters to use off-shore accounts as payment for their collateral.”
According to Priyo, most of the industry’s players use off-shore loans under long-term contracts to fund their investments to develop their mines.
“We fully understand the government’s good-will to secure foreign exchange inflow using the regulation. However, the government has to understand that exporters need more time in resolving the issue with their off-shore loan institutions,” he added.
Exports have been hit hard by the global economic downturn.
Mari said the government was intensively formulating the trade financing mechanism facilitated by the ratification of the law on the export financing agency (LPEI) and empowerment on the Indonesian Export Insurance Agency (ASEI).
“We are proposing a Rp 1 trillion (US$83 million) addition of funds to facilitate these agencies,” she said.
“The government is also trying to cooperate with external financing institutions such as the International Finance Corporation (IFC) to give more access to liquidity and export-related guarantees and assurances,” she added. (hdt)
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