Singapore details RI trade financing plan
Singapore details RI trade financing plan
SINGAPORE (Reuters): Singapore Prime Minister Goh Chok Tong told parliament yesterday that Singapore's trade insurance scheme for Indonesia would be in two parts.
He said the first US$3 billion under the previously announced proposal would be used to guarantee export credit for Singapore exports to Indonesia, and exports from Indonesia retained in Singapore.
The next $2 billion would be used eventually for exports through Singapore to Indonesia by companies whose home countries did not have similar bilateral trade guarantee schemes.
He said some details were still being worked out and he could not say at this point when the scheme would begin.
"As Singapore has no experience designing or operating a government-sponsored trade guarantee scheme, we have to start cautiously and modestly," Goh said.
He said the scheme would be administered by Singapore-based ECICS Credit Insurance Limited.
"Initially, the scheme would only provide export credit insurance for our domestic exports to Indonesia," Goh said.
"After we have gained experience with the scheme, we would extend the scheme to cover retained imports from Indonesia."
Singapore would use $3 billion out of the $5 billion it pledged earlier for this, he said.
"We will eventually expand the scheme to cover exports through Singapore by Indonesia's trading partners who do not have (their own) bilateral export credit schemes," Goh said.
"The remaining $2 billion out of five will be used for this purpose."
Goh said the Singapore government would select several banks operating in Indonesia as trade finance banks (TFBs).
It would then identify a group of Singapore exporters to participate.
Indonesian importers would go to the TFBs, which would issue export credits for the business.
The TFBs would bear the commercial risk of transactions and the letters of credit would then be presented to the Singapore- based banks of the exporters.
Should there be a default, the Bank of Indonesia, Indonesia's central bank, would give an unconditional guarantee but the Singapore government would provide partial counter-guarantee, Goh said.
The Singapore exporters, Singapore banks and ECICS Credit Insurance would share some of this risk to ensure due diligence on their part.
"Singapore and Indonesian officials will meet soon to flesh out the scheme," Goh said.
He had announced Singapore's intention to help Indonesia in the trade credit area earlier in the year.
Indonesia, a next-door neighbor and major trade partner of Singapore, has been among the Asian countries hardest hit by the regional economic crisis and as a result its companies have been having difficulty securing trade financing.