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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Indonesia: Government to require letters of credit in exports again to manage earnings

Thursday, December 11, 2014 > 09:09:14
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(Jakarta Post)

The government plans to require the use of letters of credit (L/C) in exports, in a move that may see the country’s export earnings better managed and may strengthen foreign exchange (forex) reserves.

Vice President Jusuf Kalla said such a measure would enable the government to better detect the movement of control earnings generated from overseas shipment as L/C, which are issued by banks guaranteeing international transactions are paid on time, would be issued by local banks.

“There should no longer be any outflow [of export earnings] without our knowledge. All exports must use L/C, thereby we can register our forex reserves,” he said when speaking to businesspeople at the opening of a leaders’ meeting of the Indonesian Chamber of Commerce and Industry (Kadin) on Monday.

A huge amount of export proceeds have been stored in offshore banks, such as in Singapore and Hong Kong, according to Kalla.

Trade Minister Rachmat Gobel said that the policy of L/C use in exports would be issued and would enter into force next year. It would be initially applied to mining and agriculture commodities such as coal and palm oil.

“We are now laying out a Trade Ministry regulation that will arrange its implementation. With this we want to know the actual figure of our exports and royalties [of the commodities],” Rachmat told The Jakarta Post.

The policy requiring L/C in international trade activities was put in place in 2009 to boost forex reserves but was scrapped a year after as the reserves climbed. The previous rule, issued by the Trade Ministry, demanded exporters of key mining commodities such as coal, tin, nickel and copper, and main agricultural products, including palm oil, rubber, coffee and cocoa — to use L/C issued by local banks.

Stronger forex reserves are considered necessary to support the rupiah, which is facing pressure from a strengthening US dollar against all currencies and the bleak economic outlook of the country’s major trading partners such as Japan and China.

Bank of Indonesia (BI) recently reported that the country’s forex settled at US$111.1 billion in November, sufficient to pay for the import of goods for 6.6 months, above the healthy level suggested by the International Monetary Fund (IMF), but still lower than its peers in Southeast Asia, such as Malaysia (8.8 months) and the Philippines (10.8 months).

The central bank has since 2011 required Indonesian exporters to report and channel their dollar-based export earnings to local banks within 90 days of receiving earnings, to maintain the stability of rupiah, in addition to increasing e dollar liquidity in the local currency market and facilitate its policy making based on accurate reports of international trade activities.

However, many firms still do not comply, with BI’s latest data revealing that at least 20 percent of the nation’s export proceeds were not reported and were kept in offshore banks.

Kadin chairman Suryo Bambang Sulisto said the government’s initiative to require L/C again was a right decision, adding that it would be essential for boosting the country’s forex reserves.

“Compared to other countries, such as China, our forex management is very liberal. In terms of importance, I think the move is a must because with the entry of export earnings to Indonesia, that will strengthen our forex reserves,” he said on the sidelines of the leaders’ meeting.

Vice President Jusuf Kalla said such a measure would enable the government to better detect the movement of control earnings generated from overseas shipment as L/C, which are issued by banks guaranteeing international transactions are paid on time, would be issued by local banks.

“There should no longer be any outflow [of export earnings] without our knowledge. All exports must use L/C, thereby we can register our forex reserves,” he said when speaking to businesspeople at the opening of a leaders’ meeting of the Indonesian Chamber of Commerce and Industry (Kadin) on Monday.

A huge amount of export proceeds have been stored in offshore banks, such as in Singapore and Hong Kong, according to Kalla.

Trade Minister Rachmat Gobel said that the policy of L/C use in exports would be issued and would enter into force next year. It would be initially applied to mining and agriculture commodities such as coal and palm oil.

“We are now laying out a Trade Ministry regulation that will arrange its implementation. With this we want to know the actual figure of our exports and royalties [of the commodities],” Rachmat told The Jakarta Post.

The policy requiring L/C in international trade activities was put in place in 2009 to boost forex reserves but was scrapped a year after as the reserves climbed. The previous rule, issued by the Trade Ministry, demanded exporters of key mining commodities such as coal, tin, nickel and copper, and main agricultural products, including palm oil, rubber, coffee and cocoa — to use L/C issued by local banks.

Stronger forex reserves are considered necessary to support the rupiah, which is facing pressure from a strengthening US dollar against all currencies and the bleak economic outlook of the country’s major trading partners such as Japan and China.

Bank of Indonesia (BI) recently reported that the country’s forex settled at US$111.1 billion in November, sufficient to pay for the import of goods for 6.6 months, above the healthy level suggested by the International Monetary Fund (IMF), but still lower than its peers in Southeast Asia, such as Malaysia (8.8 months) and the Philippines (10.8 months).

The central bank has since 2011 required Indonesian exporters to report and channel their dollar-based export earnings to local banks within 90 days of receiving earnings, to maintain the stability of rupiah, in addition to increasing e dollar liquidity in the local currency market and facilitate its policy making based on accurate reports of international trade activities.

However, many firms still do not comply, with BI’s latest data revealing that at least 20 percent of the nation’s export proceeds were not reported and were kept in offshore banks.

Kadin chairman Suryo Bambang Sulisto said the government’s initiative to require L/C again was a right decision, adding that it would be essential for boosting the country’s forex reserves.

“Compared to other countries, such as China, our forex management is very liberal. In terms of importance, I think the move is a must because with the entry of export earnings to Indonesia, that will strengthen our forex reserves,” he said on the sidelines of the leaders’ meeting.


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