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.