3/6/09

Export credit regulation on commodities delaye

A government regulation requiring exporters of commodities to have letters of credit (L/C) for the shipment of goods worth over US$1 million has been delayed.

The postponement of the regulation-which aims to ensure flows of foreign exchange -was needed to give more time to the commodities exporters to make adjustments regarding their payment mechanisms for shipments. The regulation was supposed to be effective as of March 5. 

After receiving inputs from the stakeholders, we decided to postpone and revise the regulation. The revision obliges mining, tin and crude palm oil exporters to start using L/Cs for transactions over $1 million per shipment starting April. For other commodities including cocoa, coffee and rubber, the new requirement will start Sept. 1. An L/C, usually issued by a bank, is a contract that binds a customer to complete the payment in a specified period and for a specified sum.

“However, all of the exporters are still obligated to report their payment methods and export figures,” said Mari, adding that the letter-of-credit requirement “will loosen the flow of foreign exchange from exporters’ proceeds.”

With flows of foreign exchange into the country from such exporters ensured, Indonesia’s financial system could benefit from strengthened forex reserves — one of the key factors to bolster confidence in the rupiah, which has been shaky of late. The country’s forex reserves currently stand at about $50.9 billion. 

The Indonesian Mining Association (IMA), the executive director, said there were some issues still to be resolved despite the revision. 

Priya expected value of mining exports, which previously averaged over $ 10 billion per year. be reduced from 30 to 40 percent to $ 6 billion amid the current global crisis and said that implementation of the new rules could reduce the value of exports further. 

"Another issue is that most exporters are contractually obliged to off-shore lending institutions. Exporters They want to use offshore accounts to pay for their security." 

According to Priya, most players in the industry to use off-shore loans under long term contracts to finance their investments to develop its mines. We fully understand that the government of goodwill to ensure the inflow of foreign exchange through regulation. However, the government has to understand that exporters need more time to resolve the matter with his off-shore lending institutions. 

Exports have been hit hard by the global economic slowdown. 

Mari said the government was intensively developing trade finance provided by the mechanism of ratification of the law on the funding agency of exports (LPEI) and the empowerment of the Indonesian Agency for Export Insurance (ASEI). 

We are proposing a 1 trillion rupees (83 million U.S. dollars) in addition to providing funding for these agencies, The government is also seeking to cooperate with external funding from institutions like the International Finance Corporation (IFC) to improve access to liquidity and guarantees for export guarantees

Source: The Jakarta Post , JAKARTA | Fri, 03/06/2009 10:08 AM | Business 
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