Singapore details Indonesian LC support
Singapore details Indonesian LC support
SINGAPORE (Reuters): Singapore has pledged a maximum of US$2.5 billion to underwrite an Indonesian trade finance guarantee facility, the Straits Times said on Thursday.
It said the Singapore commitment would come from $5 billion which it has already offered Jakarta as part of a $43 billion aid package sponsored by the International Monetary Fund.
In a report by its Jakarta correspondent, the daily newspaper said that was the figure in a proposal paper of which it had obtained a copy.
It said the paper was written by the Indonesia country manager of ABN-AMRO Bank of Netherlands, C.J. de Koning, in consultation with the Monetary Authority of Singapore.
Singapore Prime Minister Goh Chok Tong had proposed a multilateral system of guarantees for Indonesian letters of credit during a visit to Jakarta on Feb. 3, but no specific written plan was released at that time.
The aim was to help kickstart Indonesian trade stalled by banks' reluctance to provide credit due to the country's economic crisis.
The paper said the Singapore proposal is being studied by several countries, including Indonesia's major trading partners -- Japan, the United States, Australia and Canada.
The Dutch government is considering joining the underwriters of the scheme as well, with a proposed maximum contribution of $1 billion, the paper said.
The plan could provide the Indonesian central bank with up to $20 billion in guarantees, Goh has said.
Among specifics in the proposal paper, the Straits Times said, were
- Bank Indonesia selecting 15 to 20 banks where letters of credit (LCs) requests would be concentrated, which could include foreign banks based in Indonesia.
- LCs being confirmed by selected foreign banks.
- Bank Indonesia adding its own guarantee, covering the risk of failure.
- A group of governments in turn underwriting Bank Indonesia.
Multilateral organizations could also join the group.
- Foreign governments' counter-guarantees being split pro-rata according to the maximum risk amounts each would underwrite.
- The group of governments receiving a risk premium of 0.25 percent per transaction.
- Bank Indonesia opening special international trade finance accounts in U.S. dollars and other convertible currencies with several foreign banks.