Documentary credits may be employed to prevent abuses in a barter programme envisaged by Vietnam and Indonesia.

This raises the prospect of potentially new markets for documentary credits as countries in certain locations across the world consider re-establishing the type of trade that has been long forgotten in mature market economies.

Export boost

Vietnam is preparing its barter programme with Indonesia in the hopes of increasing its exports to Indonesia to US$50 million a year.

Demand from both Vietnam and Indonesia for each other's products is high, but could be higher according to the Vietnamese Ministry of Industry and Trade. It said that last year, trade between the two countries reached approximately US$1 billion, of which Vietnam exported US$450 million.

Open to abuse

Companies are clearly looking forward to the programme commencing. According to the ministry many Vietnamese companies have been hoarding considerable volumes of goods, including rice, tapioca, sugar, black pepper and cashew nuts in anticipation of the programme.

The ministry is concerned however that the barter agreement signed in June 2003 with Indonesia is open to abuse.

Payment questions

According to director of the ministry's Asia-Pacific Department, Dang Vu Thang, the programme has not yet been implemented for several reasons, one of which is a lack of specific regulations to ensure that exchanges will be carried out effectively.

Foreign trade managers experienced in barter deals meanwhile say it is important to employ a mode of payment for barter activities to minimise fraud that they say often arises in barter deals.

One suggestion from traders is for companies in each country to apply for documentary credits at banks for all commodities eligible under the programme.

Trading potential

Vietnam has at least 18 items that could be eligible under the scheme, including sugar, peanuts, coffee, vegetables and clothes. In return, Indonesia has around 20 potentially eligible exports to Vietnam, including steel, paper, electric cables and wood.

In Vietnam, the programme would be managed by the government's export credit agency, Vilexim. In Indonesia, the Manderi Bank has been appointed to manage all payment-related transactions.

Barter revival

Barter tends to be dismissed as a relic in today's more robust market economies, but in more difficult markets, it may be regaining the high profile it had during the 1980s, when it was commonly employed in eastern and western Europe.

Since successive crises in several locations since 1997 however, Asian and Latin American currencies, some of which have been massively destabilised have apparently returned to bartering.

In Argentina for example, where the peso collapsed against the US dollar thus depriving importers of hard currency to pay for goods in the usual way, the country is now using its commodities, many of which are tied to the dollar, to pay its bills.

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