1998 a hard year for businesses: Kadin

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)