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)