The yin and the yang of IndonesiaÆs economic woes is that whilst importers are twiddling their thumbs, Indonesian exporters are scrambling to fill orders. Indonesian exports rose 5.2% month on month to $4.6 billion in February alone, widening the trade surplus to $2.53 million, the highest figure in seven months. Leading the charge are non-oil and gas commodities, which accounted for 75% of the growth in exports. IndonesiaÆs former Minister of Industry and Trade, Yusuf Kalla predicted that this yearÆs exports would exceed the target figure of $60 billion, despite the ineffective banking system, which is a strong indication of how buoyant the export market is.
Indonesian banks have taken rather spectacular dives into the red. PT Bank Negara Indonesia, PT Bank Danamon and eight other local banks posted combined losses of Rp28.2 trillion ($2.9 billion) in 1999. Some 38 banks have been liquidated so far, and the remaining dominant banks are not in a position to do any trade financing. "Indonesian banks are not stable," says Paul Sheehan, Indonesian bank analyst at Lehman Brothers. "Consequently, traders are steering clear of them."
Financing Gap
This financing gap has created huge opportunities for international banks who are looking to take advantage of the situation in Indonesia with new and innovative products. HSBC, for example, uses Trade Advance in Indonesia. Phil Tucker, senior manager of Trade Services at HSBC explains: "Trade Advance looks at the relationships that exporters have with large importers. The program will identify the suppliers to the large importers, and use the history of these relationships to take on new accounts."
Given the current volatility of the Indonesian economy, is HSBC worried? "We have put a team into Indonesia looking at problem loans. But apart from that, we haven't changed attitute to Indonesia. Our criteria for taking on new customers for trade finance hasn't changed in 10 years," says Tucker. "Although US and European banks have been walking backwards from Asia, that has never been our strategy. In the last two years, we have started 500 new relationships in Asia with suppliers, the total facilities extended to these suppliers are in excess of $300 million. That's not bad at a time when no one was taking on any new customers," he continued.
Robert Petritsch, head of structured trade finance at Creditanstalt, in Singapore says that they are just as keen to enter into Indonesia because of financing gap caused by demise of the local banks. "Large exporting and importing companies are still looking healthy, and to top it all off, insurance agencies are still willing to back these companies."
Richard Burton, general manager of export credit insurance agency, Coface in Hong Kong concurs. "We are still open to the bigger export companies, particularly those in buoyant sectors, like the paper industry. But for Indonesian importers that sell domestically only, the situation is more delicate," he admits.
Size Matters
So while the going looks good for larger exporters, smaller and medium size companies are the ones finding it tough. "Multinationals are over-banked," says Sheehan at Lehman. "But traditionally, SMEs in Indonesia are the ones that are prosperous and the ones that require trade finance."
Against this, economists are not so optimistic. The Indonesian growth outlook has been cut by HSBC economists who are worried about slowing exports. The bank's forecasts for Indonesia's growth have been cut from 4.5% to 3% for 2000 and from 4.5% to 1.5% for 2001. The cut was directly related to concerns about the progress of Indonesian economic reform policies. In the latest issue of the bank's Asian Economic Insight, economists forecasted gloom for the economy if president Abdurahman Wahid's cabinet "fails to agree on a coherent set of economic reform policies, leading to significant currency volatility".
Despite the gloomy outlook for the economy as a whole, if the rupiah remains cheap at levels above 8000 to the dollar, Indonesian exporters will be the main beneficiaries. It is up to the foreign banks and the local ones - where possible - to finance the exporters to get trade moving.
