Singapore bankers cool on USDA plan
Singapore bankers cool on USDA plan
SINGAPORE (Reuters): Singapore bankers reacted coolly to a U.S. Agriculture Department (USDA) plan to let banks in Singapore participate in a U.S. farm export loan guarantee program for Indonesia.
In a move to help U.S. farm exports, USDA said last week it would allow banks in Singapore to participate in a program to offer loan guarantees for U.S. farm exports to Indonesia.
"The idea is not bad, if things are operating normally. But the condition is not normal in Indonesia. The risk is just too high," said a Singapore-based executive at a U.S. bank.
He was attending a seminar organized by U.S. Agriculture Trade Office in Singapore on the USDA plan.
USDA has allocated $400 million in GSM-102 loan guarantees to help the financially-struggling nation buy U.S. farm goods in fiscal 1998, which began October 1.
Indonesia is a leading Asian grain buyer but industry sources have estimated its soymeal and corn imports in 1998 will crumble owing to its worst economic crisis in decades.
Wheat imports could drop by as much as 20 percent despite rising consumption, they said.
As of Feb. 27, Indonesia had used only $31.4 million of the U.S. loan guarantees -- to buy $24.1 million of oilseeds, $7.1 million of cotton and $200,000 worth of corn products.
"The United States is shifting some of its risk in Indonesia to Singapore," said one banker at the seminar.
Washington does not want to lose Indonesia during stiff competition with South American countries like Argentina and Brazil in the commodities industry, the banker said.
"We are trying to maintain our market share," Lawrence McElvain, a director of USDA's Export Credits, told dozens of bankers at the seminar.
Despite the financial instability in Indonesia, "we are prepared to take the risk," McElvain said.
The GSM-102 loan guarantee program will cover all agricultural commodities and approval will be granted within 24 hours if all necessary documents are provided, he added.
Singapore also supported a multilateral system of guarantees of Letters of Credit (LCs) for Indonesia to enable the country to import goods vital for its export trade.
Singapore Prime Minister Goh Chok Tong proposed the LCs system to Indonesian President Soeharto in February.
But many bankers here were apparently unwilling to participate in the USDA program.
"Singapore government has its concerns as it has huge investment in Indonesia. If the situation in Indonesia keeps worsening, it won't do Singapore any good," one banker said of Singapore's support for LCs.
"But at the moment even one percent of risk is a big deal for any bank in Asia," the banker said.
"The main problem is they don't have cash so who can guarantee them?" he added.
The International Fund Management's (IMF) postponement of a $3 billion bail-out payment to Jakarta over the weekend cast more shadows on the USDA program, trade sources and bankers said.
"I can't imagine what will happen to Indonesia if they can't get the money from IMF or foreign banks. They've already cut down imports tremendously," said one grain trader at a U.S. commodity house in Singapore.
Even after Indonesia's key election this week, most banks are likely to maintain a wait-and-see attitude, they said.
"Anything can change any minute in Indonesia, but shipments from the United States will take three weeks to arrive. Who wants to take this kind of risk?" said one banker at a Europe-based bank.