S'pore to back Indonesian LCs as part of rescue plan

S'pore to back Indonesian LCs as part of rescue plan

SINGAPORE (Reuters): Singapore said yesterday it would make US$2 billion available if its plan for international guarantees for Indonesian letters of credit is implemented.

Deputy Prime Minister Lee Hsien Loong told parliament the money would come from the $5 billion Singapore pledged to Indonesia as part of a $43 billion rescue package put together by the International Monetary Fund (IMF).

He said Jakarta had drawn on none of Singapore's $5 billion pledge and the scheme to guarantee letters of credit (LCs) to keep crisis-hit Indonesia's trade ticking over would be in place for a maximum of two years.

Singapore Prime Minister Goh Chok Tong has proposed that countries join his LC scheme because the Indonesian crisis has meant few banks abroad are willing to accept LCs issued in Jakarta.

That has limited Indonesia's ability to import goods needed for its export industry.

Indonesia's rupiah has lost some 75 percent of its value against the U.S. dollar since July, when the crisis struck, and is contemplating the creation of a currency board to stabilize the currency, despite strong objections from the IMF and the West.

Goh said during a visit to Malaysia earlier this week that a Jakarta decision on whether or not to go ahead with the currency board plan was holding up implementation of his scheme for international LC guarantees for Indonesia.

Lee said on Thursday the guarantee scheme was still at the concept stage, being held up by a decision on the currency board, which would peg the rupiah to a major international currency, probably the U.S. dollar.

It would have to hold enough reserves in that currency to cover all the rupiah in circulation.

Lee, who is also Chairman of the Monetary Authority of Singapore, told parliament the Singapore plan "is a back-up line".

"But it has not proceeded... It is still a concept as the countries who might participate are waiting to see if Indonesia proceeds with a currency board, whether there will still be a central bank to counter-guarantee the credits," he said.

Indonesia has been discussing a currency board locking the value of its currency with that of the U.S. dollar, an idea which has come under fire from a number of countries and international financial bodies.

Lee said there had been no firm responses so far to the Singapore proposal, which would entail underwriting letters of credit.

The plan would proceed only if enough countries take part, he said.