By Gross Domestic Product (GDP) quantity of emerging economies such as China and India, ASEAN is relatively small. However, by its contribution toward world economic growth, it is recorded that more than 60% of the world economic growth is driven by emerging countries in Asia. This was delivered by Vice Minister of Trade of the Republic of Indonesia, Mahendra Siregar, in his keynote speech in the Seminar on Problems in Export Financing in Indonesia, held under cooperation of LPPI and Indonesia Eximbank in the LPPI Multifunction Hall (5/13).
“It is an interesting development because, on one hand, the GDP of emerging countries in Asia may be no more than 20-25% of the world’s GDP but its contribution toward the world economic growth is 2/3”, Mahendra continued.
In the presentation of global map of ASEAN in the world economy (GDP 2010) it is found that the economic global map has changed. The US recorded a GDP of US$14,624 billion, followed by China which, by GDP quantity, has become number 2. Although there is EU, this group includes 27 countries. Japan is in the third place, and so on. ASEAN reached US$1,486 billion, which approximately US$750 billion or 50% of it is contributed by Indonesia.
ASEAN that is relatively small in cooperation frameworks has the central share. Practically, there is no economic and trade cooperation in the Asian region which does not involve ASEAN. In this context, there are so many forms of trade and investment cooperation in the world, particularly by Asian countries. Presently, trade among developing countries (south-south trade) has become larger or majority of trade as compared with these developing countries’ trade with developed countries. More than 50% of developing countries carry out trade with their fellow countries than with developed countries.
Taking account of such global developments so far, how is about Indonesia?
In last 5 years, previously Indonesia depended on trade and investment of developed countries in north hemisphere, such as the US, Europe, and Japan and presently Indonesia increasingly draws near developing countries. The US which previously contributed 15% of Indonesian export trade, only records 10% now. Japan which previously contributed 14% now only records approximately 12% and Europe from 18% to 13%. On the contrary, Indonesia’s trade with Korea which previously recorded at approximately 3-4% increases to 7%, with China from 4-5% to 11 %, with India from 3-4% moving to 8%, and so on. Indonesia is increasingly closer to other developing countries in trade and investment closeness structure.
By structure of Indonesian industry and export product, increasing growth of export was driven by industry, mining, and agriculture. Ten main Indonesian export products which recorded increases are palm, rubber and rubber products, textile and its products, electronics, forest products, footwear, automotives, cocoa, shrimp, and coffee. Manufacture exports increased soundly, including textile and its products, electronics, footwear, and automotives. On the other hand, the only item which decreased is cocoa.
"Cocoa export decreased in the first quarter because we encourage ‘downstreamization’ of cocoa. We do not want to export cocoa seed anymore but to see the process the value added to occur domestically,” Mahendra explained.
For this purpose, since April last year the government has applied a policy called as ‘exiting fee’, namely exported cocoa seed going outside without processing will be charged with exiting fee which rate depends on the world price, averagely at approximately 15-20%. As result, exported cocoa seed decreased. However, on the other hand, sales of cocoa seed domestically to cocoa processing industries increased. Moreover, investment in cocoa processing industry increased.
According to Mahendra, the problem in export financing was not merely to finance the export of cocoa seed anymore but also to finance investment development in cocoa processing and to finance cocoa processing export itself.
Chairman of Commission VI, House of Representatives of the Republic of Indonesia, Airlangga Hartarto, a business person who also became panelist in this seminar, reviewed problems in the export real sector. According to him, the most crucial problem was the exchange rate. It tended that by a continued increase of rupiah exchange rate, export competitiveness tended to weaken. This weakness even drove incentives on import, not export, while should had been the increase and strengthening of long term production, cross sector that needed substantial subsidies and costs.
To the central bank Airlangga expressed that it was necessary to see regulations concerning the dynamics of developing commodity price. So far, financing facility extended by banks to support corporations through L/C credit has been fixed and did not see market dynamics. “While by bank financing, the extended facility is usually fixed and does not take consideration of the dynamics of developing market,” said Airlangga.
Airlangga continued to put forward a suggestion to the central bank that if consistent to national production there had to be a policy to see certain industries and open the faucet for the real sector of Indonesia. Concerning financing for Indonesian export, in addition to bank, many Indonesian exports were carried out through trading houses, which might be carried out without L/C and without necessary fund inflow to Indonesia. Many banks in Singapore made Indonesian exports not to be financed by domestic bank which caused the fund also do not enter to Indonesia. In addition to rupiah exchange rate, the barrier occurring on export was the rediscount rate in some companies that was still limited.
Finally, Airlangga asserted that without partiality, without policy, the value added will not occur in Indonesia because there was some untouched party by the banking function.
The next question is may LPEI and banks finance this in order to create a synergy between the real sector which rapidly moves but needs financing/funding and the financial sector?
Researcher of Bank Indonesia, Linda Maulidina, who was present as panelist, answered that concerning performance of export financing by banks, export use oriented credit was lower than bank credit. This decreased in last 3 years, namely Rp36.5 trillion from Rp48.3 trillion in 2010. Export use oriented credit NPL toward bank credit NPL became 2.90%, or inversely proportional to bank credit which increased every year to become Rp1,765.8 trillion.
Bank Indonesia identified some problems in export financing. On the exporter side, Bank Indonesia found that some exporting companies chose to become bank debtors overseas taking consideration of efficiency and smoothness of transactions with trading partners overseas. Foreign exporting companies (PMA) were generally required by stakeholders to become certain bank debtors overseas or of foreign bank branch offices in Indonesia, particularly for efficiency, besides easy to monitor.
On the domestic banking side, domestic banks were less competitive particularly due to difficulty of procedures and requirements to obtain credit line, which was also relatively expensive. For banks, medium and long term credit extension included high risk, while exporter needed funding for medium and long term investment. Other problem was low domestic banks’ ability in providing hedging facility as needed by exporters. In this facility provision domestic banks experienced main problem, namely pricing which reference had not been affirmed and less able to develop guaranteeing scheme as needed by exporters. Moreover, market gap occurred between bank services able to be provided by domestic banks and bank services needed by exporters. Other problem was continued limited banks’ ability in risk management.
Executive Director of Indonesian Export Financing Institution (Indonesia Eximbank),
I Made Gde Erata, in this seminar answered the abovementioned questions by explaining Indonesian Export Financing Institution which has operated officially since September 1, 2009 based on Minister of Finance of the Republic of Indonesia Decree Number 336/KMK.06/2009 dated August 24, 2009.
Indonesia Eximbank functions to support national export through National Export Financing (PEN). The forms of the PEN are (1) working/investment capital financing either under conventional or sharia principle to business entity either with legal entity or without legal entity, including individual either domestic or overseas, (2) guaranteeing (kafalah) for exporter, importer, and bank which becomes export transaction financing providing partner, and guaranteeing in purpose of tender related to implementation of project constituting activity supporting export, and (3) provision of insurance and reinsurance.
LPEI is expected to be able to bridge needs of exporter, importer, and financing as well as domestic bank share in order to establishing synergy between the real sector, exporter, importer which moves fast but needs financing and funding and the financial sector.
To conclude the seminar, Adrianus Mooy as the moderator closed the seminar with expectation that LPEI as the export financing institution might be independent, might cooperate with Indonesian banks in extending liquidity to exporters. (adm/ga).