Importers question foreign credit guarantee promises

Importers question foreign credit guarantee promises

JAKARTA (JP): Indonesian importers remain paralyzed despite
pledges by developed countries to guarantee Indonesian letters of
credit (L/Cs) for the purchase of raw materials.

Amirudin Saud, chairman of the 3,500-member Association of
Indonesian Importers, said here yesterday most of the pledges
made by the foreign countries had yet to materialize.

"They mustn't make promises that they can't keep," he told The
Jakarta Post.

Several developed countries pledged last month to provide
credit guarantees to Indonesian importers because L/Cs from local
banks have been rejected by overseas banks.

Amirudin said only the U.S. had so far implemented its US$460
million trade facility which could only be used to import certain
U.S. raw materials, including cotton, corn, wheat flour, meat,
rice and soybeans.

"These products must be brought in by U.S.-flagged ships, and
we can accept that," he added.

Japan, Australia, Germany, the Netherlands and Singapore have
yet to set up their promised facilities, he said.

Bambang Riyadi Soegomo, chairman of the Indonesian Textile
Association, also previously condemned the foreign countries.
"Everything announced to the media about facilities and
guarantees for us have been mere promises, and have not been
applied up to this point," he said.

Indonesia is suffering from its worst economic crisis caused
by the plunge of the rupiah which dropped to its lowest level of
Rp 17,000 against the U.S. dollar in January. The value of the
currency has fallen about 80 percent from its pre-crisis level of
Rp 2,450 last July.

The crisis is threatening the country's production industry
which must import about 50 percent of its raw materials.

Amirudin said the credit puzzle had sharply cut the country's
imports, which were currently valued at $100 million a month from
a pre-crisis level of $2.5 billion a month.

He said most factories would exhaust their raw material
inventories by the end of this month. "I can't imagine what would
happen if the problem is not solved," he said.

Bambang said a shortage of raw materials could force textile
export earnings down 35 percent to $4 billion this year from $6.2
billion last year. Roughly 95 percent of textile materials are
made of imported cotton, he said.

The textile industry is Indonesia's largest non-oil and non-
gas dollar earner.

Analysts have said Indonesia's major trading partners would
follow through with their credit guarantee promises only if the
International Monetary Fund (IMF) gives Jakarta passing marks on
the implementation of its economic reforms.

The IMF is currently reviewing Indonesia's implementation of a
50-point reform plan agreed to by President Soeharto on Jan. 15
in return for a $43 billion bailout package.

He said the IMF should be more flexible with Indonesia.
Although the IMF is leading the bailout package for Indonesia, it
should not be so rigid in forcing its reform programs on the
country, he added.

Providing credit guarantees alone might not be enough to
relieve the importers' problems, Amirudin said.

"The instability of the rupiah is creating difficulties in
making business plans," he pointed out.

He urged the government to quickly stabilize the currency. "We
are not asking for a low exchange rate, but a stable one," he
said.

Early last month, President Soeharto indicated that he was
planning to peg the rupiah to a foreign currency at a fixed
exchange rate through a currency board system.

The plan has drawn strong criticism from Indonesia's major
donor countries and the IMF, which has threatened to suspend its
bailout funds.

The President described an "IMF-Plus" concept in his
accountability speech last Sunday to deal with the crisis.

Analysts believe the plan would attempt to combine the IMF
reform programs with the currency board system.

The IMF provided the first $3 billion of its funds to
Indonesia in November and is scheduled to supply a second tranche
of another $3 billion by the middle of this month.

There are worries that the IMF may delay the second tranche as
U.S. President Bill Clinton's special envoy Walter Mondale, who
recently made a trip to Indonesia, reportedly gave a negative
appraisal of Indonesia's seriousness in implementing the reform
programs. (08)