Utilization of export credit guarantee facilities low: BI
JAKARTA (JP): The utilization of financing facilities provided by foreign governments and financial institutions for local exporters to import raw materials has been very low due to the volatility of the rupiah and problems in the domestic banking industry, according to Bank Indonesia.
The central bank said in its 1998/1999 annual report issued last week that out of the US$3.9 billion in a letter of credit (L/C) provided by overseas institutions, only some $1.1 billion or 26.7 percent was utilized by exporters during the period ending in March.
"The utilization of the various L/C guarantee schemes has not been maximal primarily because of the uncertainty in the expectation of the exchange rate of the rupiah against the U.S. dollar and the high commercial risk bore by the (local) banks," BI said.
BI said that foreign exchange revenue from exports was very important to help finance the country's economic recovery.
Indonesian exporters were not able to take advantage of the sharp fall in the rupiah against the U.S. dollar when the currency hit its lowest point last year due to difficulties in importing raw materials as L/Cs opened at local banks were mostly rejected by overseas banks who lost confidence in the local banks.
BI said that financial institutions from Japan, the U.S., Canada, Germany, Australia and the United Kingdom subsequently provided the various L/C guarantee schemes after the central bank agreed to back them up.
But the volatility in the value of the rupiah has created difficulties for the exporters to make business calculations, preventing them from utilizing the L/C guarantee schemes.
Meanwhile, the high non-performing loans (NPLs) and the risk of breaching the legal lending limit ruling has discouraged local banks to engage in L/C business or other lending activities.
"After increasing by 7.9 percent in the previous fiscal year, export value in 1998/1999 dropped by 15.6 percent to $47.4 billion," BI said, adding that in addition to the L/C problem, the low prices of export commodities also contributed to the poorer export performance.
The central bank said non-oil and gas imports plunged by more than 30 percent during the period partly due to the L/C difficulty.
The country's export performance remained poor at the start of the 1999/2000 fiscal year despite efforts by the government to fix the banking system and stabilize the rupiah.
The Central Bureau of Statistics (BPS) reported last week that total exports in April declined by 3.78 percent to $3.77 billion from $3.92 billion in March, with non-oil and gas exports dropping by 4.40 percent.
"Exports of textiles, timber products and electronics dropped significantly," BPS chief Sugito Suwito said referring to the country's major non-oil and gas export products.
BPS also said imports in April fell by 7.41 percent to $1.80 billion below the level in March.
The government has closed down several banks and has started recapitalization of surviving banks in a bid to restructure the industry and improve the banks' capital condition in order to allow them to start lending activities.
The government is also pushing ahead with efforts to restructure the massive NPLs at local banks.
BI deputy governor Subarjo Joyosumarto expected local banks could start giving credit in July, but warned that it would also depend on the progress with the debt restructuring process.
BI Governor Sjahril Sabirin said that positive progress with the bank recapitalization and NPLs restructuring program as well as a smooth and fair general election would provide stability for the rupiah as confidence that the economy could revive itself.
Indonesia is to hold its landmark general election on Monday.
The rupiah has been stabilizing at around Rp 8,000 to the dollar over the past couple of months on the back of improving the macroeconomic picture, particularly in inflation.
Minister of Industry and Trade Rahardi Ramelan said last week that the government has established a special financing agency to support export-oriented companies.
He said that the agency will be named Bank Ekspor but it will not raise public funds to finance its activities.
BI said in the annual report that export revenue would lessen pressure on the country's balance of payment.
BI said although Indonesia enjoyed a net capital inflow of $2.2 billion in 1998/1999, compared to a deficit of $7.6 billion in the previous period, it was primarily caused by the government's overseas borrowing of $12.5 billion, particularly from the International Monetary Fund.
BI pointed out that the net private capital flow was at a deficit of $10.3 billion as foreign direct investment has plunged.
"Instability in the economy and uncertainty in the social and political condition has lessened the interest of foreign investors to make investments," BI said.(rei).