Banker details problems in textile industry

Abdul Khalik, The Jakarta Post, Jakarta

The banking sector is still reluctant to extend loans to the country's textile companies as they doubt their business prospects given the lingering problems in the industry.

The president director of Bank Mandiri, the largest bank in Indonesia in term of assets, said that banks would stay away from the textile industry unless there were solutions to the problems, which include the lack of transparency in quota allocation, high import duty on raw materials, textile smuggling and unstable workers wages.

"Unless all these problems are addressed adequately, the banking sector will be reluctant to provide loans to the textile industry," ICW Neloe, the president director, told The Jakarta Post on Monday.

With regards quota allocation, many businessmen without factories reportedly get quotas from the Ministry of Industry and Trade while real businessmen, who have factories but no connections with the ministry, have to buy quotas from the phony businessmen.

The industry imports around 90 percent of its cotton needs, on which the government imposes a 10 percent import duty. Many say that the duty is too burdensome for the industry as it is still struggling to cope with the flood of smuggled goods and numerous labor disputes over wages.

Indonesia, which was a main player in the global textile market in the 1990s, has seen much of its market share taken over by China and Vietnam over the past few years.

Industry players blamed their decline on the banks' unwillingness to provide loans for them to replace their old machinery. However, Neloe said the decline should not only blamed on the banks, but also government policy and the failure of the industry to improve its efficiency.

He said that several national banks, including Mandiri, BNI and BRI, had met with the Indonesian Textile Association (API) and the ministry last Friday to discuss the problems facing the industry.

"I raised these problems during the meeting, and we agreed to establish a special team to find solutions to the problems. We will meet again on April 1," said Neloe.

He said that Mandiri had restructured debts owed by textile companies, but called on them to overhaul their outdated machinery without having to replace it.

The industry could also improve efficiency and increase profit by cutting unnecessary costs.

"It is now up to them to make their companies bankable because for now, many banks believe the textile industry has no prospects due the problems," Neloe said.

Meanwhile, Baari La Inggi, a textile analyst, said that the banking sector must resume lending to the industry given the huge workforce involved in the industry. The industry employs around 3.5 million people directly and indirectly.

He also underlined that among all of the non-oil and gas industries, the textile industry is the largest contributor of foreign exchange to the country.

"The textile industry generated US$7.2 billion in export revenue in 2003, up from $6.8 billion in 2002. I think the industry deserves attention from the banking sector," Baari told The Jakarta Post.