(Humanitarian assistance)

Mr Zulkifli bin Baharudin asked the Prime Minister whether, in view of the deteriorating situation in Indonesia, it is timely for Singapore to consider humanitarian assistance to Indonesia.

The Deputy Prime Minister (BG Lee Hsien Loong) (for the Prime Minister): Mr Speaker, Sir, with your permission, and on behalf of the Prime Minister, I will answer Questions 9 to 14 together as they are related.

Mr Speaker: Yes.

BG Lee Hsien Loong: Political change in Indonesia has taken place peacefully and constitutionally. Political and social unrest has abated. Nevertheless, the new Indonesian government under President Habibie faces formidable challenges. The Indonesian economy has been badly damaged. The rupiah remains weak. Trade financing for Indonesian exports and imports has practically stopped. Corporate debt restructuring negotiation is not yet completed. Unemployment is growing. Prices are rising sharply, including prices of necessities.

Indonesia's changed political and economic situation does not affect our commitment to implement practical schemes to help Indonesia. We will proceed with our proposed bilateral trade finance guarantee scheme and humanitarian assistance.

The Prime Minister has already given the details of the Bilateral Trade Finance Guarantee (BTFG) scheme to the House on 20th April this year.

The BTFG will initially provide export credit insurance for Singapore's domestic exports to Indonesia. Later, after we have gained some experience with the scheme, it can be expanded to cover retained imports from Indonesia and also exports to Indonesia through Singapore by countries which do not have their own bilateral export credit schemes. The scheme will be operated by ECICS Limited using Singapore-based banks and designated trade finance banks in Indonesia.

Singapore and Indonesian officials met on 20th April to discuss the scheme. After the first meeting, the Indonesian officials stated that they would need to study the scheme further. The teams have not yet met again because of the recent events in Indonesia. Singapore is ready to resume discussion with Indonesia when they are ready.

The bilateral trade finance guarantee scheme replaced the US$5 billion loan which Singapore had pledged in November last year to Indonesia as a back-up facility to supplement the IMF programme. We made this change in March in response to Indonesian requests that Singapore launch a trade finance guarantee scheme on its own.

Singapore believes that the bilateral trade finance guarantee scheme can play a significant catalytic role to unlock private sector capital to finance Indonesian trade. The key is confidence - in Indonesian banks, exporters and importers. The trade finance guarantee scheme, with proper safeguards, can help to restore such confidence and encourage foreign banks to open or accept letters of credit for Indonesian trade.

On humanitarian assistance, the Singapore Red Cross had launched a campaign on 24th March this year to raise S$5 million. The money will be used to buy food and medical supplies for needy Indonesians.

Dr Lee Tsao Yuan: Is the bilateral trade financing scheme contingent on the IMF resuming its loan to Indonesia?

BG Lee Hsien Loong: Sir, the first priority for Indonesia is to establish political certainty, stability and confidence because these are critical for economic recovery. And confidence has to be signalled by international agencies like the IMF and G7. If there is confidence, then our scheme can be of help. If there is no confidence, it is very difficult to make an impact.

Mr Zulkifli Bin Baharudin (Nominated Member): I would like to ask the Deputy Prime Minister, in view of the almost total collapse of the Indonesian banking and financial system, what are the risks of the proposed bilateral trade financing scheme.

BG Lee Hsien Loong: Mr Speaker, Sir, this is one of the concerns in designing the scheme because while, in principle, we know what we need to do, in practice, the scheme has to be crafted in such a way that it achieves its objectives and the benefits flow to the targets. In other words, it is meant for our exports to Indonesia, and later on exports from Indonesia, and it is bona fide trade, and this is financing for that trade. As a result of the financing, trade will flow and, furthermore, in due course, the loans will be repaid.

It is a complicated matter to design the scheme to be effective as well as to safeguard against possible difficulties in implementation. Trade financing is a very specialised and complex subject. We have been consulting the experts in order to make sure we achieve our objectives.

Mr Zainul Abidin Rasheed: Mr Speaker, Sir, may I ask a supplementary question on the issue of confidence building? In addition to the trade finance guarantee scheme, is the Government taking any other measures to help, in terms of confidence building, for example, in our contact with IMF or other agencies, that would help in the process of confidence building?

BG Lee Hsien Loong: Sir, to be quite candid, the issue of confidence is something which the Indonesian government has to address. It is not something which an outside party, like Singapore, however well-intentioned, can make a big difference to. But the IMF can make a difference if they conclude that the Indonesian government is indeed carrying out the correct measures and they signal that they approve of the measures which the Indonesian government is doing. Perhaps the great powers like the US, maybe the EU, and perhaps Japan, if they similarly signal confidence, it would have some impact. In the case of Singapore, I think the demonstration effect might be somewhat less.

Mr Seng Han Thong (Ang Mo Kio): May I ask the Deputy Prime Minister whether we have officially informed President Habibie that our offer is still valid, and what is their initial response to our offer, if any?

BG Lee Hsien Loong: Sir, we have not made such an official notification. It is assumed so. We have met the officials on 20th April. They have gone back. They are studying it. We expect them to come back in due course and we will consider their inputs in deciding our scheme.

Mr Jeyaretnam: Mr Speaker, Sir, may I ask whether it is the Government's view that confidence in the Indonesian economy can only be restored if there is a total political change in Indonesia, and not just replacing personalities? Has the Government any views on this and has it made any representations to Indonesia to speed up the political reforms in Indonesia?

BG Lee Hsien Loong: Sir, I am aware that the hon. Member regularly calls for total political change in Singapore and elsewhere. It is not the practice of the Singapore Government to do so.

Mr Jeyaretnam: Are you not interested in the economy in Indonesia? Do you not think that it would be best for Indonesia's economy if there is a total change? Do you or do you not have any views?

BG Lee Hsien Loong: Mr Speaker, Sir, I have already stated that economic recovery depends on political certainty, stability and confidence. As to whether the government needs to be changed and who should be the government, these are matters for the Indonesian population and electorate to decide, not for the Singapore Government.

Mr Zulkifli Bin Baharudin: When we made the offer of loan to Indonesia, it was made against the background that Indonesia has not defaulted on its sovereign loan. But in view of the current situation now, there is a possibility that they may not also similarly wait for signs of reform and recovery in both its banking and financial system before proceeding to make any disbursements.

BG Lee Hsien Loong: Mr Speaker, Sir, as I have explained, the bilateral trade finance guarantee scheme, in fact, replaces the $5 billion loan which we had earlier proposed. When we are talking about trade finance, the issue is the specific parties involved. There are specific banks involved, and the parties which guarantee the banks. Of course, if all that fails, then finally it becomes a sovereign debt owed by Indonesia to Singapore. That is why we are in the process of designing the scheme so that it operates with parties which are sound and which will be able to carry through the deals.