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.