Continued difficulties with letter of credit (L/C) regulations, added to pressure from China's economic downturn, have resulted in a tough first quarter in 2016 for Indonesia's banking sector.

Indonesia's economy is around 60 per cent reliant on exports of commodities, many of which go to China.

Steep decline

Prices of Indonesia's core commodities have declined steeply.

In 2015, crude oil lost 44 per cent of its value, palm oil fell by 13 per cent, coal by 29 per cent and rubber by 26 per cent.

Regulatory impact

Indonesia's L/C regulations have also taken their toll on commodity exports since they came into effect in April 2015.

The regulations specified that L/Cs must be used for exports of four primary commodities, coal; palm oil and palm-kernel oil; oil and gas, and minerals (DC World News, 16 February 2015).

L/C requirements

The four commodities combined account for some 41 per cent of Indonesia's exports.

In the wake of sustained low oil prices the Indonesian government subsequently relieved oil and gas exporters of the L/C requirement, but Indonesia's major commodity exporters have struggled to meet the L/C requirements (DC World News, 21 September 2015).

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