China's help sought over textile woes

Zakki P. Hakim, The Jakarta Post, Jakarta

The government is seeking the help of China in restructuring Indonesia's ailing textile industry, a senior official at the Ministry of Industry and Trade said on Wednesday.

Director General of Metal, Machinery, Electronics and Miscellaneous Industries Soebagyo said the government hoped the Chinese government could provide export credit facilities to China-based textile machinery makers to ship their products to Indonesia to replace the old machinery of local textile companies.

He said the request was made during a recent ASEAN Economic Ministers (AEM) meeting in Jakarta.

Minister of Industry and Trade Rini MS Soewandi and China's Minister of Commerce Bo Xilai held a bilateral talk on the sidelines of last week's conference, Soebagyo said.

Although there was no immediate answer from China, the two sides agreed to form a committee to further study the proposal, he said.

According to one study, unveiled by the government last month, the textile industry needs around $500 million to replace old machinery.

"Replacement would first be concentrated on the knitting, weaving and finishing industries," Soebagyo said.

The products (fabric and yarn) from the three industries have strong international demand, he added.

Yarn and fabric accounted for 43 percent and 23 percent of Indonesia's export volume, respectively, from 2001 and 2003.

Soebagyo said the government proposed a countertrade mechanism, in which Indonesia would provide steel to manufacture the machinery needed.

Soebagyo added that some local banks had expressed interest in providing loans for the replacement program.

"A senior central bank official told me that at least 14 local banks have expressed interest in financing the industry," he said, but did not name the banks.

Indonesia's textile industry has been facing difficulties in competing in the export market due to, among other things, out dated machinery. Out of more than 4,100 textile companies, at least 774 companies need to replace their old machinery.

As the global textile quota system is about to end later this year, there has been rising concern that local textile makers will be unable to compete in the key U.S. market against more efficient producers, particularly from China.