More than 200 delegates attended FinanceAsia’s Corporate Treasury Summit in Indonesia late last year to discuss trends and share their experiences within the trade finance and cash management industry. Corporate treasurers, CFOs, finance directors and transaction bankers highlighted key strategies for cash and trade following Indonesia’s successful weathering of the global financial crisis.
“In the past two years, while other countries struggled and are still struggling to pull themselves out of the recession, Indonesia has emerged as one of Asia’s powerful economies with a remarkable performance, stable economic growth, stable political conditions and a strong and stable currency value. This has put Indonesia in the spotlight as one of the most promising investment destinations,” said Adi Setianto, director of treasury and financial institutions at Bank Negara Indonesia (BNI). “The financial market is at a very strong stage with a bullish stock exchange performance; this is expected to continue for many years to come. We believe that with the much anticipated rating hike for Indonesia to investment grade in 2011, and along with the global economic recovery, Indonesia will gain more trust from investors.”
According to Setianto, the hardest-hit countries have taken various strategic steps in order to mitigate risk, including launching stimulus fiscal policies and lowering benchmark interest rates to ease liquidity. One of the consequences of such actions is the inflow of large sums of short-term capital into the emerging markets, he said.
Setianto also highlighted Indonesian banks’ increased transaction banking business volumes, as well as greater investor demand for investment instruments to diversify portfolio strategies. “Investors are also turning to derivative products to mitigate risks related to their investments. In the end, this opens up more business in derivative products, especially for hedging purposes as well as structured financing business,” he said.
Intra-Asian trade driving trade finance
Trade finance was another key discussion topic amongst transaction bankers and corporate finance representatives. Asia remains the prominent source and destination for trade finance, said Wilo Syamsu, deputy general manager of the international division at BNI. He said 65% of Indonesian exports remained in Asia, with Japan, China and Singapore the leading destinations importing 18%, 14% and 12% respectively of Asian trade. The US remains the other major market for exports, the second largest after Japan, and commanding 16% of total Indonesian goods. India, Malaysia, South Korea, Taiwan and Thailand are the other Asian export locations in the top 10, with the Netherlands an outlier. A total of eight Asian countries and one country in Europe and the Americas in the top ten illustrated the importance of Asia for Indonesian trade.
Similarly, Asia is the main supplier of Indonesian imports with a 69% share, according to Syamsu. It is no surprise that the top three Asian export destinations — China (23%), Japan (17%) and Singapore (16%) - are also the top three sources for imports, he said. The US supplies 12% of imported goods while Australia, India, Malaysia, South Korea and Thailand are also among the top 10 sources of imports. This means that of the top 10 importing nations to Indonesia, eight are in Asia-Pacific leaving just the US and Germany as the European and American representatives.
“Demand is emerging from the world of trade finance which makes it a prospective business to tap into,” said Setianto. “The advanced development of international transactions nowadays generates more demand for trade finance services and products. A synergistic effort with treasury structured financing needs be implemented in order to create more competitive advantages for Indonesia in global business competition. Facts show that even though efforts have been made to expand the trade financing business, it is still minor compared to the huge potential demand for trade financing.”
The importance of cash management was also touched upon at the summit. During his presentation on the importance of managing short-term assets to increase liquidity, Christian Kartawijaya, CFO and executive director at Indocement, emphasised that cash is king for Indonesian corporations. He simplified the goals of cash management into two main points: to “have enough cash on hand to meet immediate needs, but not too much”, and to “get cash from those who owe it to the company as soon as possible and pay it out to those the company owes as late as possible”. He emphasised that CFOs should bear in mind that there will be an associated cost, “whichever way the CFO elects to speed up the receipt or slow down payment of cash”.
Having emerged relatively unscathed from the global financial crisis, Indonesia’s corporations are looking for deeper and more sophisticated treasury and trade services, and its banks are gearing up to meet demand. “From a macro economy point of view, Indonesia is fundamentally stable and sustainable. Strong fiscal and monetary policies will increase investors’ trust and confidence, which simultaneously will make the real sector at the micro economy level stronger,” Setianto concluded.
This story was first published in the February 2010 issue of FinanceAsia magazine.