Most trade financing schemes 'not utilized'

JAKARTA (JP): Most of the trade financing facilities obtained by the government from several donor countries has not been fully utilized by local banks to help restore import activities, according to the government.

A Ministry of Industry and Trade report says the government has obtained US$5.77 billion for a trade financing scheme, which includes a letter of credit (L/C) guarantee and pre-export financing facilities.

However, only $618 million of the amount had been utilized as of the end of October, Antara quoted the report.

Of the total utilized funds, $486 million was used for import activities by the State Logistics Agency (Bulog) and state-owned oil firm Pertamina.

The ministry says domestic banks appointed by Bank Indonesia and the finance ministry to distribute trade financing facilities to importers were still reluctant to do so.

They are faced with barriers such as high credit risks and high interest rates, legal lending limits and lack of experience in intermediating trade financing facilities.

Some banks said they could not issue L/Cs in the name of importers which they considered incapable of fulfilling their obligations to them.

Several importers complained that they were required to deposit 100 percent security in local banks before they could be issued a letter of credit, despite government guarantees of L/Cs.

In the past, after receiving their shipments many importers had a three-month grace period before they had to pay the L/C amount.

The ministry said many local banks also had very little or no experience regarding the system and network to deal with overseas clients and financial institutions.

Countries providing the trade financing facilities to Indonesia include Australia, Japan, the United States, Canada, Germany and the Netherlands.

The report suggests that the government use joint-venture banks to participate in the trade financing scheme.

Joint-venture banks normally have better trade-finance units and are more active in export-import activities, compared to domestic banks, it said.

Guarantee letters

In addition to foreign trade facilities, the government has also pumped in $5.5 billion to guarantee letters of credit for local exporters hit by frozen international bank lines of credit, a director of the central bank said last week.

The measure is part of the efforts to accelerate the recovery of the real sector badly hit by high interest rates, Bank Indonesia director Miranda Goeltom said.

Plunging confidence in the country's troubled banking sector prompted international banks to reject local L/Cs.

Bank Indonesia stepped in during the middle of this year by opening more than $1 billion in deposits at foreign banks to guarantee the L/Cs. (das)