Payment risk

Indonesia is a risky trading environment. Indonesia’s banking sector remains weak in the aftermath of the economic crisis. This constrains lending and it has increased bank charges on local companies. Accordingly, selecting the right partners is critically important and undertaking thorough due diligence is recommended.

Austrade stresses to Australian companies that any business should be on a fully secured basis and recommends that companies can get further information from the Export Finance and Insurance Corporation on country risk:

New exporters, or exporters new to Indonesia, need to be particularly careful. We are seeing a greater use of advance payments at present (good for the exporter) … Terms usually apply after a healthy relationship of trust and mutual benefit has been established.

EFIC, the Export Finance and Insurance Corporation, has a range of services designed to assist the export of Australian capital goods and services and investment in overseas projects, including medium to long term finance facilities and political risk insurance. EFIC also has Export Working Capital Guarantees to assist smaller Australian exporters in securing working capital finance from financial institutions.

In June 2003, Indonesia was given a market grade of 5 by EFIC (in a rating system whereby 1 is Low Risk, and 6 is High Risk).

For high-risk markets, 100% indemnity is not currently available from EFIC. However, EFIC assesses each proposed transaction individually, with the market grade not a conclusive factor in its decision making.

There are a number of credit reference services available in Indonesia although their reliability varies. Exporters should check with their bank or Austrade for advice on suitable services.

Transparency International (TI), an international NGO that monitors corruption in over 100 countries, ranked Indonesia 122 out of 133 in its most recent 2003 survey

Describing the rating system, the 2003 TI report stated that corruption in countries with a CPI score of less than 2 is considered to be pervasive.

Transparency International corruption perceptions index, 2003

Exporters face problems with import regulations that are complex, often non-transparent and at times open to interpretation by officials at the wharf. An experienced, well-positioned importer can help clear products quickly, often with less expense.

Under invoicing is also widespread in Indonesia. Its basic purpose is to reduce tax and duty payable on the landed goods by the importer. Companies should be aware that under-invoicing, although common practice, is illegal.

As of April 2004, travel advice from the Department of Foreign Affairs and Trade was that:

‘We continue to advise Australians to defer non-essential travel to Indonesia, including Bali. The August 2003 attack at the JW Marriott Hotel in central Jakarta is a reminder that terrorist groups are active in Indonesia and that attacks could occur at any time. We continue to receive reports that further attacks are being planned against a variety of targets, including embassies, international schools, international hotels, churches, shopping centres, transport hubs or identifiably western interests, including businesses. Security at the Australian Embassy in Jakarta remains at a high level as a precautionary measure. Australians in Indonesia who are concerned for their security should consider departing.

Australians who remain in Indonesia should continue to exercise extreme caution throughout the country, especially in commercial and public places frequented by foreigners including—but not limited to—clubs, restaurants (including international fast food outlets), bars, places of worship, hotels, schools, shops, shopping centres, housing compounds, outdoor recreation events and tourist areas.

This caution should be exercised in particular in Jakarta, including the central business and embassy districts, in other metropolitan and tourist centres in Java and Sumatra, and around premises and symbols associated with the Indonesian Government.

The recommendation that Australians defer non-essential travel applies to Indonesia as a whole. We advise Australians to avoid all travel to Aceh, and those in Aceh are advised to depart. We further advise Australians to read carefully the sections below on travel to west Timor, Maluku and North Maluku, North, South and Central Sulawesi, and Papua. There remains a potential risk to foreigners of kidnapping in areas close to the Philippines, such as the outlying islands of North Sulawesi, and the border regions of Kalimantan.

We also caution about ‘sweeping’ operations (raids) by militant Islamic groups against bars, nightclubs and other public places which might seek to identify Australians. Australians should take particular care to avoid public demonstrations.

Australians should note that new visa rules were introduced on 1 February 2004, and seek advice from the nearest Indonesian Embassy or Consulate prior to arrival. Australians in Indonesia should register with the Australian Embassy

Security concerns have led Australian firms to rely more heavily on Austrade services. Austrade is helping companies by monitoring the situation and helping with logistics, and ‘has now started focussing more resources on customer-facing activities in the market, expanding our customer base and improving the quality and convertibility of realistic market opportunities.

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