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Indonesia eyes stronger trade finance to boost exports
Publication Date : 11-09-2013
Indonesia would strengthen its trade financing scheme to encourage local exporters to tap into non-conventional markets so that the country’s export growth could stay strong amid the weak global demand, a minister said.
Currently, local manufacturers prefer not to sell their goods outside of Indonesia’s traditional export markets notably the US and China due to the high risks of tapping developing countries, because of the uncertainty over the political climate and price volatility there.
The trade financing a scheme where the government provides financing or insurance for exporters looking to sell their goods in non-conventional markets could be the solution for the problem, Finance Minister Chatib Basri said.
“Nowadays, one of the problems we face in the global economy is when the value [of commodities] goes down, then our manufacturers are reluctant to export due to the increasing risks,” the minister said on Tuesday during a national seminar on trade finance in Jakarta.
“This is why they need insurance and certainty when exporting their goods,” he told the seminar participants, adding that an improvement in exports could also help narrow the country’s current account deficit.
In Indonesia, such financing is conducted by the state-owned Indonesian Export Financing Agency (LPEI), which assists local companies looking to sell their goods in high-risk countries, where banks are reluctant to do so, or charge higher interest rates.
Despite the weak global demand, the agency targets to raise export financing up to 60 percent higher compared to last year.
“We want to participate in export-oriented credits for companies whose products are needed overseas, but they need long-term financing – such as seven year loans with competitive rates,” LPEI chairman I Made Gde Erata said on Tuesday.
Languid export growth has been blamed with the recent deceleration of Indonesia’s economic growth, which expanded by only 5.8 per cent in the second quarter, being the lowest level in nearly three years. The country’s export growth declined 6 per cent in the first seven months this year, compared to the same period last year.
In terms of exports, Indonesia remains heavily dependent on its main trading partners: China, Japan and the US, which jointly account for 35 per cent of Indonesia’s total exports, according to the Central Statistics Agency (BPS). But the archipelago has been encouraged to ship more goods toward non-conventional export destinations due to their lucrative potential.
A statistic from the Trade Ministry shows that non-oil and gas exports to non-traditional and emerging markets, such as South Africa and Colombia, posted a growth of more than 100 per cent last year, compared with around 6 per cent growth to Indonesia’s 10 key export markets.
“Back to the principle of finance, do not put all your eggs in one basket,” said Chatib. “Thus, if we want to prevent the ongoing volatility from disrupting our exports growth, then we should not focus on exporting goods only to the US and China we must diversify our exports.”