Hike could cost 60,000 jobs in textile firms
Hike could cost 60,000 jobs in textile firms
Edhi Pranasidhi, Dow Jones/Jakarta
The Indonesian government's dramatic fuel price raises may force
about 200 textile companies into bankruptcy and lead to 60,000
job losses this year, an industry representative said Wednesday.
The government, reacting to soaring global oil prices,
announced just after midnight Saturday that the cost of gasoline
would rise 87 percent to Rp 4,500 (US$0.44) per liter, while
diesel fuel would more than double and kerosene triple.
The size of the rises, much larger that expected, caught many
by surprise, but economists have said that the bold move could
help the government -- which spent US$7.4 billion last year on
fuel subsidies -- balance its ballooning budget. The government
hopes it will help stave off an economic crisis.
"The closures could cause massive layoffs," Benny Sutrisno,
chairman of the Indonesian Textile Association, told Dow Jones
Newswires.
Higher fuel prices will push the industry's projected
operational costs -- excluding possible wage hike demands -- up
as much as US$500 million this year, which could lead to job
losses of 5 percent of the textile sector's 1.2 million workers
by the end of 2005, Benny said.
Forecasts by several investment banks indicate the hike could
cause inflation to accelerate to 14 percent year-on-year in
October, from 9.06 percent in September, and the government may
fall short of its 2005 economic growth target of 6.0 percent by
up to a percentage point.
Bank Indonesia's move Tuesday to tackle inflationary pressure
by raising its benchmark interest rate by 100 basis points to
11.0 percent will erode profit margins and choke bank lending to
textile firms seeking to upgrade their machinery to compete with
aggressive China-based exporters, Benny said.
He said Indonesia's 2,760 garment and textile producers, led
by PT Indorama Synthetics and PT Argo Pantes, the biggest
manufacturers, account for the bulk of the country's non-oil
exports.
Textile exports contributed around 13 percent of Indonesian
gross domestic product in 2004.
"The government must realize that textile companies can create
jobs, so they need to regulate and protect the business," Benny
said.
The Indonesian Textile Association projects the country's
textile and garment exports will rise 3.9 percent to US$7.9
billion in 2005 from US$7.6 billion in 2004.
The "relatively flat growth" forecast is due to an exodus of
the garment and textile sector's traditional foreign buyers to
more competitive producers in China, Benny said.
"(China) sells its products at lower prices than ours," he
said.