Exporters hail plan to set up trade financing agency

Exporters hail plan to set up trade financing agency

JAKARTA (JP): Exporters hailed on Saturday the government's
plan to establish a financing agency whose immediate focus will
be to provide them with subsidized preshipment working capital
and export credit, as a breakthrough in overcoming the export
financing bottleneck.

Irwandy Muslim Amin, general secretary of the Indonesian
Textile Association, said on Saturday that the new plan would
provide exporters with a clear and workable credit scheme for the
purchase of imported raw materials.

"This is good. It's a move we've been insisting on," he told
The Jakarta Post on Saturday.

Textiles are one of the country's major non-oil and gas export
earners.

Minister of Trade and Industry Rahardi Ramelan disclosed the
plan to the press on Friday, but it will not be formally
announced until later this week.

He said that the new agency would be established by converting
one of the banks currently under the control of the Indonesian
Bank Restructuring Agency. The appointed bank will take over all
existing export financing schemes after its bad assets and
liabilities have been cleared.

He said that the agency would provide guaranteed short-term
export financing and export insurance, as well as operating as an
export information data center.

Local exporters have been confronted with serious difficulties
in obtaining necessary imported raw materials, particularly
during the first half of this year, due to overseas banks'
rejections of the letters of credit (L/Cs) they opened at local
banks.

Although the government later received export financing
credits from international financial institutions guaranteeing
local L/Cs, the exporters continued to have difficulties, as
local banks were reluctant to open L/Cs for them.

Local banks feared that the L/Cs would turn bad, adding
further difficulties in meeting the strict government requirement
of a minimum of 4 percent capital adequacy ratio by the end of
this year.

The Ministry of Trade and Industry said in a report that only
US$618 million out of the $5.6 billion provided by Bank Indonesia
and foreign institutions for the export financing scheme had been
used by local banks as of the end of October.

Irwandy agreed, estimating that less than 2 percent of the
export credit guarantees provided by Bank Indonesia had been
utilized, because the local banks appointed to run the scheme
demanded various unreasonable requirements, particularly the need
to provide a 100 percent deposit margin for the L/C.

"We had 28 meetings with various ministries, government
institutions and participating banks to sort out the problems,
but ended up with no results," he added.

He explained that with a single financing agency, exporters
would no longer have to face a "ping-pong" treatment, like in the
past when exporters had to go back and forth between various
bodies involved in the financing schemes.

He also expected that the agency would not demand unreasonable
requirements for the financing facility.

Irwandy was also optimistic that the new agency would help
exporters maximize export revenue, as they would no longer have
to provide massive discounts to the foreign buyers who had been
providing the raw materials during the domestic financing
bottleneck.

The chairman of the Indonesian Handicraft Exporters
Association, Rudy Lengkong, also welcomed the plan.

"This is what we've been waiting for, especially as the agency
will be run by a privately-owned bank. This will help to boost
our exports," he said.

"State banks are not efficient because they're too
bureaucratic," he added.

He stressed, however, that the government had to make sure
that the financing facility would focus on export oriented
businesses, and not on other sectors like the real estate
industry.

"I also expect this facility to be enjoyed by small and
medium-sized exporters," said the chairman of the 3,000-strong
membership association, which has a combined annual export value
of around $2.5 billion.

He said that in order for the new agency to effectively boost
exports, promotional agencies abroad had to be reopened.

The government closed down the state-sponsored export agencies
due to financing difficulties.

"We have to find ways to reopen the agencies because
promotional activities are essential in helping to boost
exports," said the former chairman of the National Export
Promotion Agency.

"Thailand has been aggressive in making promotions abroad," he
added. (rei)