Thu, 06 Mar 2003

Govt urged to go all out to prevent more bankruptcies

Rendi A. Witular, The Jakarta Post, Jakarta

The government must quickly move to mend the "classic problems" hampering investment and should provide incentives to businesses to prevent more manufacturing companies from going bankrupt or downsizing operations, businessmen and analysts said on Wednesday.

Secretary General of the Indonesian Textile Association (API) Indra Ibrahim told The Jakarta Post that the bankruptcy of many manufacturing companies was triggered by classic problems that the government was unable or unwilling to address.

"The problems affecting the manufacturing sector have been screamed out loud by most businesspeople since 1998 such as bribes, smuggling and legal uncertainty. However, to this point, those problems remain and it seems like the government has just given up," said Indra.

Noted economist Faisal Basri concurred and said the government should shift its priorities from macroeconomics to addressing all the micro problems.

"The current macroeconomic condition is fine. However, I am amazed how corruption by civil servants just keeps getting worse, which pushes up the cost of the economy. And the government just turns a blind eye to these corrupt bureaucrats," said Faisal.

Indra and Faisal were commenting on the rising bankruptcy among medium- and large-scale manufacturing companies after a study was completed by the Central Bureau of Statistics (BPS).

The BPS reported that the number of bankruptcies among large- and medium-sized manufacturing companies jumped by 22 percent to 835 companies in 2002, up from 650 the previous year.

The data also showed that 767 companies downsized their operations last year, a 41 percent increase from the 447 in 2001.

Aside from the "classic" domestic problems, Indra spoke about, the bankruptcy of many textile companies was also caused by external factors such as the slowing down of the global economy and growing competition from other developing countries such as China and Vietnam, both of which have higher productivity and lower costs.

However, Indra said that domestic problems only exacerbated the situation, and thus reduced the competitiveness of Indonesian products on the world market.

Indra suggested that as long as the government could not solve the corruption it should introduce other incentives to domestic export-oriented companies that were losing their competitiveness.

The incentives, added Indra, could include soft loans and tax breaks such as the exemption of the 10 percent value-added tax for imported raw materials for export-oriented industries, such as the textile sector.

Labor-intensive manufacturers such as textile, garment and leather companies topped the bankruptcy list last year (242 companies going bankrupt), followed by the food, beverage and tobacco sector (215), and the wood, bamboo, rattan and willow sectors (143).

BPS also recorded that the bankruptcies, downsizing and mergers of operations caused some 130,000 employee layoffs.