Buyers turn to other states due to business uncertainty

JAKARTA (JP): Many buyers of Indonesian textiles and shoe products have switched their orders to other Asian countries due to growing business uncertainty in the country, according to local industry representatives.

The chairman of the Indonesian Footwear Association (Aprisindo), Anton J. Supit said on Thursday that many buyers of Indonesian shoes had cut their imports on fears that companies here would be unable to meet their orders.

"This year we will be lucky if we can get 60 percent (US$ 1.2 billion) of last year's trade, which was worth US$1.9 billion," he said on the sidelines of a seminar on trade financing facilities.

He said that Indonesian shoes were very cheap as a result of the sharp depreciation in the value of the rupiah against the U.S. dollar. However despite this, foreign buyers have shown a preference for buying from other countries because they fear Indonesia's political instability could disrupt production.

He said the Indonesian footwear industry currently depends on four main buyers -- Reebok, Adidas, Nike and Fila -- whose purchases account for 72 percent of Indonesia's total annual shoe exports.

"Foreign companies are also very worried for the safety of their expatriate staff," he said, citing last weeks clashes between anti-government protesters and security personnel that left 15 people dead. He also drew attention to the wave of mysterious "ninja" killings that has left many parts of rural Java in an highly agitated condition.

The secretary-general of the Indonesian Textile Association, Benny Soetrisno, echoed Anton's view and said that the country's uncertain future had left foreign buyers unwilling to place middle and long-term orders with local manufacturers.

Benny said exports of textiles and textile products were only expected to increase by 9.5 percent to $8 billion this year due to the decline in orders.

"It will be more difficult for us to export next year if the political uncertainty continues. Buyers are currently waiting to see what happens," he said.

Anton said that shoe exports had also been adversely affected by trade financing problems.

Anton said that most export-oriented companies in the country are still unable to open letters of credit (L/Cs) at the appointed local banks, despite government guarantees designed to ease difficulties in obtaining credit.

Anton said the 21 appointed banks are reluctant to issue L/Cs because they are burdened by myriad unresolved banking problems.

The banks are being forced to operate more conservatively than ever before due to liquidity problems and mounting bad debts, he said.

"The appointed banks do not want to take any risks. Although the government guarantees our letters of credits, they are still reluctant because it may create more problems for them," he said.

In July, Bank Indonesia appointed 21 local banks to provide guaranteed trade financing to help certain Indonesian export companies import raw materials.

Plunging confidence in the country's troubled banking sector has prompted international banks to reject local L/Cs.

Bank Indonesia has attempted to help exporters in recent months by making available trade financing worth US$5.7 billion in a package of measures including L/C guarantees and pre-export financing facilities. However by the end of October, only $618 million of the total assistance made available had been used.

Without the government's guarantee, most importers are required to deposit 100 percent security in local banks if they want a letter of credit.

Both Anton and Benny urged the government to create a new financial body outside of the banking system which could support exporters without being restricted by existing banking regulations.

Benny said the government should work to improve coordination of trade financing facilities offered by the Ministry of Finance and the central bank.

"Don't let's wait any longer because we've already lost millions of dollars waiting for a trade financing scheme to be implemented," he said. (gis)