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Export Letter of Credit Plan Dumped
June 28, 2010

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Indonesia has canceled a proposed regulation that would have required exporters of commodities such as cocoa, coffee, rubber, palm oil and mining products to use a letter of credit from local banks for export transactions worth more than $1 million.

The government issued the regulation in April 2009 and it was set to take effect on July 1. It was intended to support the rupiah by ensuring revenue from commodity exports was kept onshore.

The Ministry of Trade originally delayed the introduction of the regulation from Sept. 1 to Nov. 1. Implementation was subsequently postponed again, to July 1.

“Based on evaluations, the regulation is no longer needed. Thus it is canceled and will not be applied,” the ministry said in a decree signed by Trade Minister Mari Elka Pangestu last Thursday.

The current export reporting system will continue. Under the system, exporters have to submit regular reports of payments received from their overseas buyers to the Trade Ministry.

Sandiaga Uno, managing director of private equity firm Saratoga Capital and a former head of the Indonesian Young Entrepreneurs Association (Hipmi), welcomed the decision.

“I welcome the move because my colleagues, especially in small and mid-sized businesses, have been complaining about the added cost it would bring,” Sandiaga said. Exporters had claimed that obtaining a letter of credit would cost them 0.8 percent of the total transaction.

“We’ve been hoping for a while that it would be canceled,” Sandiaga said.

Jeffrey Mulyono, president director of coal miner PT Bhakti Energi Persada, said the requirement would have undermined normal trade practices and increased costs.

“Why do we need it since there are already standing agreements between importers and exporters?” he said. “It would have only led to an added burden for both exporters and their buyers.” Reuters & Irvan Tisnabudi