Utilization of export credit guarantee facilities low: BI

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).