SINGAPORE-INDONESIA BILATERAL TRADE FINANCE GUARANTEE SCHEME (Details)

[Mr Speaker in the Chair]

Mr Zainul Abidin Rasheed asked the Prime Minister if he will give more details on the bilateral trade financing guarantee scheme that he has offered to assist the Indonesian Government to overcome the currency and economic crisis.

Mr Tay Beng Chuan asked the Prime Minister how soon can the proposed US$3 billion bilateral trade financing scheme for Indonesia be implemented and whether the details of the proposed scheme can be given to businessmen early to prepare themselves to resume trade with their counterparts in Indonesia quickly.

The Prime Minister (Mr Goh Chok Tong): Mr Speaker, Sir, may I have your permission to take Questions 1 and 2 together as they are both related?

Mr Speaker: Yes.

Mr Goh Chok Tong: Thank you. The Singapore Government originally proposed a Multilateral Trade Finance Guarantee Scheme to help resolve the trade finance problems faced by Indonesian firms. However, the G7 countries, whose participation is vital since they are the largest trading partners of Indonesia, prefer their own bilateral trade financing schemes.

On 28th February 1998, then Minister for Finance Mar'ie Muhammad asked our Finance Minister Richard Hu to have Singapore launch the Multilateral Trade Finance Guarantee scheme on our own. On 2nd March 1998, then Minister for Trade and Industry Tunky Ariwibowo repeated the request to our Ambassador in Jakarta, Edward Lee. On 20th March, in Jakarta, the Minister for Trade and Industry Muhammad Hasan made the same request to Ambassador Lee.

In response to these requests, Singapore decided to launch a Singapore-Indonesia Bilateral Trade Finance Guarantee (BTFG) Scheme. I wrote to President Soeharto on 31st March informing him of Singapore's decision to establish the BTFG after Indonesia and the IMF have reached an agreement on their latest round of negotiations. He called me up in London on 2nd April to thank Singapore for its decision.

The BTFG is a bilateral scheme to enhance confidence in trade financing transactions undertaken by banks in Indonesia. The aim is to help restore established trade between the two countries.

As Singapore has no experience designing or operating a government-sponsored trade finance guarantee scheme, we have to start cautiously and modestly. Initially, the scheme will only provide export credit insurance for our domestic exports to Indonesia. After we have gained experience with the scheme, we will expand it to cover retained imports from Indonesia. Singapore will use US$3 billion out of the US$5 billion that it has earlier pledged to Indonesia for its IMF package to back this facility.

We will eventually expand the scheme further to cover exports through Singapore by Indonesia's trading partners who do not have their own bilateral export credit schemes. The remaining US$2 billion of the US$5 billion that Singapore has pledged to Indonesia will be used for this purpose.

Conceptually, we have the following mechanism in mind. ECICS Credit Insurance Ltd will administer the Scheme. ECICS is an unlisted public company that is in the business of insuring Singapore exports against risks of non-payment. The Singapore Government will select several banks operating in Indonesia to be designated as Trade Finance Banks (TFBs). We will also identify a group of Singapore exporters to participate in the scheme.

Indonesian importers will approach one of the approved TFBs to issue a Letter of Credit for a sales transaction secured with an approved Singapore exporter. The TFB will bear the commercial risk on this transaction. The Letter of Credit will be presented to the Singapore-based bank of the Singapore exporter. Bank Indonesia will guarantee fully the obligations of the TFB to this Singapore-based bank. The Singapore Government, in turn, counter-guarantees part of Bank Indonesia's obligations under the scheme. The Singapore exporters, the Singapore-based bank and ECICS will share in some of this risk. This is necessary to ensure that each party in the scheme does due diligence.

If the TFB fails to honour its obligation on the Letter of Credit it has issued, Bank Indonesia's unconditional guarantee will apply.

The Scheme will run for an initial period of two years or until the Indonesian trade finance cycle is restored, whichever is earlier. However, the Government of Singapore reserves the right to discontinue the Scheme in the event of a change in circumstances which renders it no longer relevant or valid.

Singapore and Indonesian officials will meet to flesh out the scheme soon. I am unable to say now the exact date when the BTFG scheme will come into operation. We will need some time to work out the procedures and rules to create an effective scheme which will achieve its objectives. We are seeking help from international experts. We know its importance for Indonesia and will endeavour to get it going as soon as possible.

Mr J. B. Jeyaretnam (Non-Constituency Member): May I ask the Prime Minister whether his Government is still of the view that no approval is needed from Parliament and the President before the Government embarks on this guarantee scheme despite the opinion given by the Attorney-General on Article 144 when the Attorney-General said it did not apply to loans but only apply to guarantees? Would the Prime Minister explain why he thinks this guarantee is also not caught by Article 144?

Mr Goh Chok Tong: Mr Speaker, Sir, the same question has been asked several times by Mr Jeyaretnam of both the Deputy Prime Minister and the Finance Minister, and both Ministers have explained the situation quite clearly. I am of the view that the Attorney-General has advised me very well.

As to the guarantee part, this comes under the Monetary Authority of Singapore (MAS). MAS will issue the guarantee and under the MAS Act there is provision for the Authority to do so without our having to come to Parliament or going to the President. I can assure the Member and also the other Members of the House that we would do things in accordance with the Constitution. If there is a need to come to Parliament, we will come to Parliament. There is no question about that. There is no difficulty in that. If we have to seek the President's approval, we will seek the President's approval. In this particular case, the MAS Act has allowed us to proceed with the scheme without our having to come to Parliament or to seek the President's approval.

Mr Jeyaretnam: Another supplementary question for the Prime Minister. We have heard about the MAS Act. But is it not his view and the Government's view that the Constitution is the supreme law of the country and takes precedence over any Act?

Mr Goh Chok Tong: Mr Jeyaretnam is a lawyer. The Attorney-General is the person to answer the question. I have been advised by the Attorney-General that what we do is perfectly constitutional.

Mr Jeyaretnam: Has the Attorney-General now advised that Article 144 does not apply to guarantees as well?

Mr Goh Chok Tong: He has not advised me but I have read the arguments between the Finance Minister and the Deputy Prime Minister with Mr Jeyaretnam, and that advice was given to the Deputy Prime Minister and it is part of the advice to the Government.