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)