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)