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)