1998 a hard year for businesses: Kadin

JAKARTA (JP): Next year will be a hard year for businesses, especially for domestically oriented firms, as economic growth will slow down, according to the Indonesian Chamber of Commerce and Industry (Kadin).

But the chamber is optimistic the current crisis will ease in the second half of next year, right after the election of the president and vice president in March, providing the new government pursues good governance.

At a year-end press conference yesterday, Kadin chairman Aburizal Bakrie said economic growth in 1998 would be about 3 percent to 4 percent.

"Therefore, the business community should anticipate such a slowdown by pursuing austerity, improving efficiency and undertaking consolidation," Aburizal said.

As a result of the weak rupiah, production costs in terms of rupiah would increase, which would then force some manufacturing companies to stall production and lay off workers.

About 40,000 workers in the construction sector have already lost their jobs, and toward mid-1998, another 300,000 workers in the textile and textile-related sector could also be laid off.

"A source at the Ministry of Manpower predicted that as many as one million workers could lose their jobs by the end of this month due to the crisis," Aburizal said.

Domestic consumption would decline as a result of the weakened rupiah. Therefore, domestically oriented companies with offshore loans would face serious difficulties next year, he said.

The hardest hit sector would be the property sector, especially in the up-market segment, Aburizal said.

"The banking sector is likely to swallow the brunt of the impact as bad loans will soar. Consequently, banks will be more careful in providing new loans," Aburizal said.

Only export-oriented firms and banks which had disbursed loans to such firms would prosper as exports would be the main drive behind growth next year, he said.

However, Kadin remained optimistic the current economic hardship would not drag on until the end of 1998.

It contended that new foreign investment was likely to come back after the convening of the People's Consultative Assembly (MPR) in March, which would elect a president and vice president.

"Kadin... is optimistic the current crisis can be handled, and it is expected that in the second half of 1998, after the convening of MPR in March, there will be a new foundation for sustainable growth, supported by political stability and good governance," Aburizal said.

To help achieve economic recovery, Aburizal said, businesses, especially large ones, should stop expansion and pursue consolidation, restructuring, rationalization and efficiency.

Businesses should improve their transparency to gain confidence from global investors and consumers so they could survive global competition.

The government should pursue transparency in governing, including in licensing procedures, so that foreign investors would come back to Indonesia, Aburizal said.

The government should also ease liquidity and lower interest rates to revive dying domestic economic activities.

Despite the monetary authority's promise to ease liquidity, Aburizal said, the market was still dry and companies found it difficult to secure bank loans due to high interest rates.

"Even though banks are flooded with liquidity, if benchmark SBI (Bank Indonesia Certificate) rates remain high, banks would rather place their funds in SBIs without risk than lend it to companies with some risk," Aburizal said.

He acknowledged that state banks and some large private banks had offered loans with annual interest rates of 24 percent to 28 percent, but their availability was limited.

Most banks, however, still offered choking rates of over 30 percent -- a level which would punish businesses.

The core of the problem was actually the sharp depreciation of the rupiah against the U.S. dollar, which had prompted the government to maintain tight liquidity and high interest rate policies.

Tight liquidity and high interest rate policies had proved ineffective in stopping the rupiah's depreciation, and therefore the government should abandon such policies, Aburizal said.

"The rupiah's depreciation past 5,000 against the U.S. dollar has gone beyond economic issues, and therefore remedies should also address matters outside the economic arena," he said.

He cited political issues surrounding the presidential succession process as one example of hindering the rupiah's recovery.

He suggested that the government clearly explain matters related to the succession issue to foreign fund managers to prevent them from speculating further.

"To restore investors' confidence, the government also needs to explain all of its policies clearly, including on what projects are to be shelved, what measures are to be taken to reduce the high-cost economy and so on," Aburizal said.

He said Kadin welcomed the government's initiative to form a team, headed by former minister Radius Prawiro, to seek rollover facilities from foreign creditors for Indonesian firms' short- term debt, which had been blamed for worsening the crisis.

He said a similar team formed by Kadin earlier would be ready to help the government-appointed team.

Kadin also proposed that the government appoint three international investment banks, each from the United States, Europe and Asia, to provide the government input on ways to solve short-term private debt.

The government, Aburizal said, took a similar step in 1974/1975 by involving a noted foreign investment bank, Morgan Guaranty, to help solve the Pertamina crisis.

"We cannot rely anymore on the World Bank and the International Monetary Fund to solve the current problems as most of the problems from private offshore debt have come from private fund managers and commercial banks," Aburizal said.

"Therefore, we need to appoint investment banks to give suggestions to us about how to deal with the private foreign debt," he said. (rid)