Singapore awaits response to Indonesian L/C scheme

Singapore awaits response to Indonesian L/C scheme

SINGAPORE (Reuters): Singapore said yesterday it was awaiting responses from other countries before going ahead with its plan for trade financing guarantees for Indonesia.

"The proposal is awaiting responses from countries to which the prime minister has written," Foreign Minister Shanmugam Jayakumar told parliament.

Singapore Prime Minister Goh Chok Tong has suggested a multilateral consortium be formed to guarantee letters of credit (L/C) from Indonesian banks for use by essential Indonesian export industries.

Countries Goh has written to include the Group of Seven (G-7) major economies -- the United States, Canada, Japan, Britain, France, Italy and Germany -- and also China, Australia, Brunei, Malaysia, and the Netherlands, the minister said.

He did not say if any of these countries had so far replied.

Indonesian trade had been hit badly by the financial crisis which has swept Asia in recent months. Its currency, the rupiah, has lost more than three quarters of its value since last July, making many Indonesian companies technically bankrupt.

As a result, Indonesian firms have found it difficult to get their letters of credit accepted by international customers, limiting their ability to buy foreign raw materials vital for the export manufacturing trade.

But questions have arisen in recent days over the viability of Singapore's L/C scheme.

Indonesian Trade and Industry Minister Tunky Ariwibowo was reported on Wednesday as saying Singapore's plan to form a consortium to guarantee Indonesian L/Cs had come to a "dead end" because it could not get the agreement of other countries.

The Monetary Authority of Singapore, Singapore's de facto central bank, denied the scheme had been canceled, but said Singapore wanted support from other countries.

Proposing the idea last month, Goh has said he thought it ought to be possible to get $8 billion-worth of guarantees.

Jayakumar stressed Singapore could not support a trade financing scheme alone.

But he said it was important to help Singapore's southern neighbor.

"Indonesia is a key strategic player in the region. A politically stable and economically sound Indonesia is therefore important," he said.

He said that it was to address that need that Singapore had offered its $5 billion contribution to a bailout plan led by the International Monetary Fund (IMF) and had proposed the trade financing scheme.