New banking regulation introduced

JAKARTA (JP): Bank Indonesia, the central bank, yesterday enforced a new ruling on the uniform practice for documentary credits imposed on local trading activities as part of the government's effort to accelerate non-oil and gas exports.

"The new ruling, which has just been completed today (yesterday), should be seen as a concerted part of the new deregulatory measures which were introduced by the government last week," Bank Indonesia Governor Soedradjad Djiwandono told reporters at a briefing at the central bank's headquarters here yesterday.

The ruling authorizes banks to make payments to third parties which usually act as suppliers of goods at the behest of applicants who act as buyers of goods in the transactions, he explained.

"The documentary credit scheme is actually the same as that introduced by the Paris-based International Chamber of Commerce last year," he said. That involved a new payment scheme, called the Uniform Customs and Practice for Documentary Credits, which required traders to use the code for their export and import activities. The new code, popularly known as UCP-500, took effect in January this year.

"But the core of our decree is to standardize the system of payment to be used by local traders for their transactions," Soedradjad said, adding that the central bank thus far adjusted the UCP-500 code in line with the country's business climate.

With the new ruling, applicants can instruct the banks to issue letters of credit (L/C) in either rupiah or foreign currency, he said.

"But, the L/C payment in foreign currencies is only permitted for foreign exchange banks, while L/C payments in rupiah can be handled by any bank," he added.

"Like the UCP-500 scheme, the local documentary credit is irrevocable, meaning that the credit cannot be canceled or amended without the permission of all parties involved," he said.

Bill of lading

He said that the shipment of goods, which also requires a bill of lading,covering port-to-port shipments through any couriers or shippers, is subject to negotiations between buyers and suppliers.

Documentary studies on the shipment should be made by the banks, which are responsible for the payment, within seven days after receiving the bill of lading, the governor said, adding that the new decree only applies to the trade of goods and not for transaction of services.

"Service transactions can be thus far covered by the existing procedures," he added.

Like UCP-500, the banks will also accept an insurance document which contains all risk notations or clauses, he said.

"For the purpose, the central bank has instructed all related ministries and institutions, such as the ministries of transportation, tourism, post and telecommunications, and finance to realign their provisions which are expected to facilitate the implementation of the local documentary credit scheme," he pointed out.

"You can see that the new ruling on documentary credit will help facilitate not only the delivery of goods, but also payments to suppliers, who are always vulnerable to delays of payment," he added.

He noted that suppliers, most of whom are small-scale producers, received payment three months after delivery. "With the new scheme, they can receive the money as soon as they complete the shipment," he added.

According to Soedradjad, the decree will therefore help speed up the country's exports, since most products exported are supplied by manufacturers located on distant islands.

The central bank will soon introduce the new payment scheme to bankers, entrepreneurs, exporters and importers so that they are prepared to enforce the new 23-chapter ruling, Soedradjad said.

"Thanks anyway to some buyers and banks, which have thus far tapped the documentary credit scheme, for their payments to local trade," he said. (fhp)