Japan's assistance to restore trust in LCs sought
JAKARTA (JP): President Soeharto asked a senior Japanese official yesterday to help restore trust in Indonesian letters of credit (LC).
Minister/State Secretary Moerdiono said the rejection of Indonesian LCs by foreign banks, including those in Japan, dealt a big blow to exporters.
"There's been an obstacle in importing raw material for export products recently because banks abroad refuse to accept LCs from Indonesia," said Moerdiono after accompanying the President in meeting with Masahiko Koumura, Japan's deputy foreign minister and special envoy of Prime Minister Ryutaro Hashimoto.
Moerdiono said the President expected Japan to help solve the problem.
Japan is Indonesia's largest trading partner and also its biggest creditor.
Bankers and businesspeople have said many foreign banks have refused to accept LCs issued by Indonesian banks due to the worsening of their financial performances in the last several months.
Yesterday, the rupiah plunged further to Rp 11,800/12,300 to the U.S. dollar at the close after touching down near 14,000 in the morning.
The rupiah's sharp depreciation has caused a severe problem for Indonesian banks not only due to the increase in their foreign debt but also due to the high interest rates imposed by the central bank to shore up the battered rupiah.
"The closing down of 16 private national banks in November has also lowered foreign banks' confidence in our banks," said an international banking official at a foreign-exchange bank in Jakarta.
Of the 16 liquidated banks, five had foreign-exchange licenses: Bank Pacific, Bank Harapan Sentosa, Bank SBU, Bank Guna and Bank Andromeda.
He said Bank Pacific's foreign correspondents had faith in the bank because it was 50 percent owned by Bank Indonesia, the central bank.
He said more reports about the country's troubled banking industry had further deteriorated confidence.
The bank official said LCs drawn on local banks were denied by their foreign counterparts, unless they were guaranteed by foreign banks.
"This has caused a reconfirming cost of between 1 percent and 2 percent of the LC value," he said, adding that if the rupiah continued to fall to lower levels, the reconfirming cost would increase. "This is a big blow to our importers."
Another jolt to importers was they had to pay a 100 percent deposit margin to open an LC in Jakarta. With the already scarce amount of dollars in the economy, it would be difficult to provide such a large amount of dollars up front, analysts said.
Anton J. Supit, chairman of the Indonesian Footwear Federation, acknowledged the difficulty. He said most foreign banks would no longer accept usance LCs from Indonesian importers.
"They would only accept a sight LC," he was quoted by the daily Bisnis Indonesia as saying.
During the precrisis period, Indonesian importers normally opened a usance LC, which did not require such a large amount of cash up front.
With such obstacles in opening an LC, Anton doubted whether the government's non-oil and gas export target of US$49.25 billion in the draft 1998/1999 state budget could be attained.
Indonesian exporters manufacturing products with 50 percent imported raw materials would be in a real mess, analysts said.
Indonesia's export of plywood to South Korea is expected to fall to its lowest level in coming months due to the rejection of South Korean LCs by Indonesian banks, said Wissubagio, marketing director of giant timber firm PT ITCI Hutani Manunggal.
He said many Indonesian banks worried that South Korean banks might be liquidated as the country's economy was also facing a crisis.
He said about 300,000 cubic meters of plywood remained untouched in South Korean ports due to the rejection of their LCs.
"It's a serious problem because it will kill Indonesian plywood exports to South Korea, which has been the third major buyer of Indonesian plywood in the past few years," he said. (08/gis)