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.