Indonesian exporters of key commodities have objected to a government plan made at the beginning of the year, making it mandatory to use letters of credit (LCs) for export payments. This was announced by a deputy to the chief economic minister, Bayu Krisnamurthi, after a meeting between Indonesian government officials and industry associations.
The rule, to be in effect from March 5, is a move aimed at protecting the faltering rupiah currency and covering the risk of payment defaults as the global recession deepens.
Exporters subject to the rule are those working in unprocessed primary products or processed goods such as coffee, crude palm oil, chocolate, rubber, mining commodities and tin plates.
To comply with the rule, exporters can only ship out commodities if they can show the number of the LC for payment of such shipment, proving that they have been paid in full. The current ruling is that exporters can ship out their commodities even if they have received only a small portion of the export contract from buyers.
The new regulation will also halt the practice of exporters receiving their payments from customers in overseas accounts. The announcement was made by trade minister Mari Pangestu in early January. “The letters of credit will ensure payment by buyers to exporters,” Pangestu stated, adding that export proceeds must be transferred and received through domestic banks.
The question raised at the time the regulation was announced was whether buyers will agree to use the letters of credit, as it may incur additional costs, which may drive them to seek supplies from other countries.
Reader Comments