Some of Indonesia's raw commodity exporters will soon have to use letters of credit (L/Cs) in export transactions in a move the government says will allow it to better monitor export payments and boost the country's foreign exchange reserves.

Bankers are reportedly delighted with the move, since it will mean more L/C business for them while exporters have also welcomed the new regulation.

Local accounts

As of 5 March 2009, payments for many Indonesian exports will have to be paid into foreign exchange accounts held at domestic commercial banks.

This new regulation is aimed at stopping exporters from receiving customer payments into accounts in overseas banks and should lead to an increase in Indonesia's foreign exchange reserves.

Improved access

The new policy is also a component in the government's efforts to ensure that exporters were paid on time.

"Exporters will also be able to quickly access funds for their working capital by using L/Cs as loan collateral or other trade financing incentives schemes provided by the government," says Indonesia's Trade Minister, Mari Elka Pangestu.

Welcome move

Head of the international division at Bank Saudara, Sadhana Priatmadja, meanwhile says banks welcome the new regulation. "If exporters are obliged to use L/Cs, we will collect more fees," he says.

The policy will also decrease exporters' payment risk, thereby reducing banks' credit risk to exporters he added.

Exporters' view

Secretary General of the Indonesian Exporters Association, Toto Dirgantoro, said exporters would welcome the introduction of L/Cs so long as they did not have to pay any additional fees.

Exporters affected by the new regulation include those dealing in unprocessed primary products or processed goods such as coffee, crude palm oil, chocolate, rubber, mining commodities and tin plates.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.