Exporters urge BI to facilitate L/C process

Exporters urge BI to facilitate L/C process

JAKARTA (JP): The government must take prompt action in
solving difficulties faced by importers in opening letters of
credit (L/C) at local banks, a top official of an export-oriented
industry association said.

Anton J. Supit, chairman of the Indonesian Footwear
Association (APRISINDO), said that local banks' requirement of
100 percent cash up-front as a security deposit to open a L/C was
setback for export-oriented companies, which import most of their
raw materials.

"In the current tight liquidity, it is impossible to fulfill
such a requirement," he told The Jakarta Post.

He expected Bank Indonesia, the central bank, to take quick
action to help lift the hurdles, including by providing special
credit facilities.

He said the billion-dollar L/C guarantee promised by foreign
governments did not mean the L/C predicament faced by the
country's importers was over.

Most overseas banks have turned down local L/Cs following the
closure of 16 commercial banks in November. Some foreign banks
have now started to accept local L/Cs following the international
commitment to provide guarantee facilities for Indonesia's
imports.

Some of the trade guarantee facilities, including the US$1
billion from U.S. Exim Bank, are now available.

"The trade guarantee facilities are only solving half of the
problems," Anton said. He pointed out the trade guarantee would
be only used to protect the overseas correspondent if Indonesian
banks defaulted on the L/C payment.

He said local banks still required local companies place a
100-percent margin deposit to open a L/C due to fears the
companies would not be able to pay for their imports on time.

"I think state banks can start the facilities by allowing
exporters, which import most of their raw materials, to use a
usance L/C to back up their imports," he said.

Opening a usance L/C type, which does not require a 100
percent margin deposit, was common before the crisis hit. But as
overall confidence in the country's business environment plunged
due to the monetary crisis, banks switched to at sight L/C
requiring a margin deposit.

Anton was confident that revitalizing the country's non-oil
and gas export industry would be a significant help in
stabilizing the ailing rupiah, which has plunged to about Rp
9,000 against the U.S. dollar from Rp 2,450 in July last year.

He acknowledged that the central bank would face difficulties
in providing financing facilities to help all of the export-
oriented businesses import their raw materials.

"But we must make priorities," he said. He identified as
particularly suitable candidates for the facility as exporters
which have distinct export commodities, a good track of record
and could show a L/C from their overseas buyers.

He said the sharp depreciation of the rupiah should have
boosted Indonesia's exports, now relatively cheaper, but this was
not the case in reality.

"But we have failed to take this opportunity due high
production costs. It's ironic."

The shoe industry is one of the country's major foreign
exchange earners after oil and textiles, and a large employment
provider. Last year, the shoe export value dropped by 10 percent
from $2.2 billion in 1996.

Anton said the nation's shoe exports had continued to decline
during the first three months of the year due to the L/C snag.

Chairman of the Indonesian Importers Association Amirudin Saud
also discussed last week the problems faced by Indonesian
importers in opening a L/C. He said it threatened the
workability of the billion-dollar L/C guarantee provided by the
country's major trading partners. (rei)