Indonesian Govt. postpones commodities export credit regulation

11 March 2009 | 04:42 Code : 18862 Geoscience events
The Indonesian Government has agreed to delay until April 1 the implementation...

The Indonesian Government has agreed to delay until April 1 the implementation of a new regulation that the country’s miners obtain letters of credit from local banks if shipping more than US$1 million worth of minerals off-shore. The letter of credit is a contract that binds a customer to complete the payment within a specific period and for a specific amount. The regulation was scheduled to go into effect last week. However, exporters say it will raise costs and discourage overseas companies from purchasing Indonesian products because it would require the buyers to deposit in advance at least some of the funds into Indonesian banks, instead of after they receive the minerals shipments. The regulation is aimed at reducing capital outflows and ensuring that foreign currency remains in the country, Indonesian Trade Minister Mari Elka Pangestu told reporters.  Exporters will also be prohibited from receiving money from foreign companies in overseas accounts."The policy is a part of government efforts to ensure that exporters are paid on time," she said, adding the exporters could use the letters of credit as loan collateral or for government trade financing incentives. Indonesian exports have been hard hit by the global economic downturn. The Jakarta Post reported that with the flows of forex into Indonesia ensured, Indonesia’s financial system could benefit from strengthening in forex reserves-a key factor in boosting the rupiah.  The Post estimated that the country’s forex reserves stand at US$50.9 billion.However, Mari told reporters, "After receiving inputs from the stakeholders, we decided to postpone and revise the regulation." The regulation was supposed to gone into effect as of March 5, but has now been postponed until April.Indonesian Mining Association Executive Director Priyo Pribadi Soemarno predicted that the value of mining exports, which average more than $10 billion per year, will decline 30% to 40% to $6 billion. He suggested implementation of the new regulation could reduce mineral export values even more.Mari, however, said the Indonesian government has proposed Rp 1 trillion (US$83 million) in additional funds to help agencies implement the regulation. She added the government is trying to cooperate with external financing institutions such as the International Finance Corporation (IFC) to give more access to liquidity and export-related guarantees and assurances.An issue of concern to miners is that most of the Indonesian mineral exporters are contractually bound with foreign loan institutions, who want the exporters to use off-shore accounts as payment for their collateral, he said. Priyo explained most of the major miners use off-shore loans under long-term contracts to fund their investments to develop their mines."We fully understand the government’s good-will to secure foreign exchange inflow using the regulation," he said. "However, the government has to understand that exporters need more time in resolving the issue with their off-shore loan institutions."

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