Govt to settle US$500m unpaid letters of credit

Govt to settle US$500m unpaid letters of credit

JAKARTA (JP): Bank Indonesia will settle the arrears of the
letters of credit (LCs) issued by the country's banks to
international banks, estimated at US$500 million, Coordinating
Minister for Economy, Finance and Industry Ginandjar Kartasasmita
said yesterday.

Ginandjar, who is also chairman of the National Development
Planning Board, said the payment would be taken to facilitate the
country's international trade, which has been bogged down over
the past several months following the rejection of the country's
LCs.

He said the arrears had blocked new credit lines for trade
financing to the country, which had in turn hurt the country's
imports.

Ginandjar however said that the country's banks would
eventually have to repay the financing supports.

"The government will ask the Indonesian Banking Restructuring
Agency to deal with the indebted banks," Ginandjar told a media
conference after attending a meeting of the Council for Economic
and Monetary Resilience at the Bina Graha presidential office.

Bank Indonesia Governor Sjahril Sabirin said at the same
conference that the government would settle the arrears at the
request of the country's businesspeople.

"We hope the country's imports will run well as in the past,"
he said.

Sjahril also said that in order to facilitate the country's
international trade, the central bank had placed $700 million in
seven international banks to guarantee the country's LCs. Each
bank had received $100 million.

The banks are ABN-Amro Bank, Standard Chartered Bank, Deutsche
Bank, Bank of America, Chase Manhattan Bank, Citibank, and
Hongkong & Shanghai Bank.

The government expected to sign similar agreements with two
other banks -- the Bank of Tokyo-Mitsubishi and American Express
Bank -- in the future, Sjahril said.

"Thus far 27 LCs, valued at $25.7 million, have been issued in
the framework of the guarantee funds," Sjahril said.

Aside from the international banks, Bank Indonesia had also
signed a cooperation agreement with the Export Finance and
Insurance Corporation (EFIC) of Australia to guarantee the
country's LCs for the import of food, medical equipment, raw
materials and spare parts from the country, Sjahril said.

He said the central bank had processed 60 applications, valued
at $26.1 million, for the EFIC financing scheme, he said.

The U.S. Department of Agriculture had also provided $400
million in guarantees of the country's LCs for cotton and wheat
imports from the United States, Sjahril added.

The Japan Export Import Bank (JEXIM), the Singaporean
Government, and the U.S. Export-Import Banks, have also offered
help to guarantee the country's LCs, he said.

JEXIM has offered $1 billion for the government to place with
international banks as a guarantee of the country's LCs.

The U.S. Exim Bank has offered insurance on all trade
financing provided by the U.S. commercial banks of up to $1
billion to the Indonesian banks.

Sjahril said the Singaporean government was not going to
provide finance or loans to Indonesia, but a counter guarantee
scheme on the money placed by the Indonesian government at
international banks to guarantee the country's LCs.

He said the Singaporean government had provided $5 billion for
the scheme, including $3 billion to guarantee Singaporean exports
to Indonesia and the remaining $2 billion for other countries'
exports to Indonesia through Singaporean banks. (jsk/prb)