Slow demand for EFIC's Indonesian export fund

Slow demand for EFIC's Indonesian export fund

SYDNEY (Reuters): The Export Finance and Insurance Corp (EFIC) has seen slow demand for its A$900 million in special funding to underwrite Australian exports to Indonesia.

The government agency believes it would remain able to underwrite the trade despite the Indonesian crisis, EFIC's general manager business development Geoff Hickey told Reuters in an interview.

But one acid test remained on whether special funding would continue to flow -- continued Bank of Indonesia (BI) sovereign guarantees.

"As long as the BI can provide that sovereign guarantee, prima facie we can continue with the trade," he said.

"But if we saw something happening in the country that really unnerved us and the BI was still prepared to issue guarantees, you might want to take stock."

EFIC, given access to a total of A$900 million in federal funds to underwrite exports to Indonesia -- almost all in wheat and cotton -- had so far received applications for about A$100 million.

"They're pretty exceptional circumstances. The whole process of making it happen will go perhaps more slowly than otherwise." But trade was flowing, even in the eye of Indonesia's political typhoon.

BI processed some paperwork on Tuesday for EFIC-backed deals, Hickey said, the same day that President Soeharto said in a live television broadcast that he would not stand in his promised but so far untimed special election.

EFIC regarded Wednesday as a key day on whether matters remained manageable in Indonesia, but would not forecast events from here, Hickey said, who added he would watch carefully any further protests or uprisings in Jakarta and other cities.

Moslem leader Amien Rais, who had vowed to bring a million people onto the streets of Jakarta Wednesday, called off the plan. But thousands of students continued their protest at the Parliament building.

"I'm assuming we'll still be able to write this trade. But clearly things will be volatile."

The Australian government's national interest facility, through EFIC, was one of the few viable ways to ensure trade finance for Australian exports, Hickey said.

But even with the facility, protracted negotiations and processes were slowing both wheat and cotton exports.

Despite EFIC's backing of about A$500 million for wheat and A$400 million for cotton exports, commercial negotiations were still proceeding between the Australian Wheat Board and its Indonesian customers and between cotton exporters and their buyers, traders and trading houses, he said.

Some wheat trade had taken place but the bulk of it that would have access to EFIC funding was still under negotiation, he said. Cotton traders were also still negotiating with buyers.

A greater amount of funds would start to increase in the next month or so, he said.

Bank of Indonesia, in exercising its sovereign guarantee, was putting quite prudential limits and constraints on what risk it would accept, Hickey said.

BI was not nominating dollar limits, while the Australian government also treated deals on a case-by-case basis, he said. But procedures involved EFIC, after receiving a deal, allocating cover then sending it to BI for approval. Any change in prices or shipping terms required the work sent back to BI.

"Exporters, buyers, banks and ourselves are all going through a process which is quite unusual. That's not that extraordinary when you think about it, the risk is extremely high."

Hickey painted an Indonesian commercial landscape of compressed demand, with a large number of businesses not credit- worthy and unable to open letters of credit with banks which were winding back on credit whether they had viable clients or not.