Indonesian pulp industry not hurt by rupiah gains

Indonesian pulp industry not hurt by rupiah gains

SINGAPORE (Dow Jones): Indonesia's pulp and paper producers
aren't expected to be adversely affected by the strengthening
rupiah against the U.S. dollar, Muhammad Mansur, chairman of the
Indonesian Pulp and Paper Association, said late on Sunday.

While a stronger rupiah will no doubt erode export income,
producers will find relief in servicing outstanding loans, he
said.

"They will still make profit, just that the amount may not be
as huge as before," Mansur said in an interview.

With the rupiah losing as much as 70 percent of its value
against the dollar last year when the Indonesian economy
collapsed and foreign capital took flight, the country's pulp and
paper producers saw their export income sharply boosted in rupiah
terms.

Indonesian producers incur costs in rupiah and earn dollars
when sales are made in the international market.

"It's actually better to have a slightly firmer rupiah," he
said.

Citing a rupiah trading range of Rp 6,000-Rp 7,500 against the
dollar last week, Mansur said pulp and paper producers will find
it less costly to obtain new loans.

In the last two weeks, the rupiah made great strides against
the U.S. dollar, after having fallen to as low as Rp 17,000 to
the dollar in the second half of 1997.

In the afternoon trade on Monday the rupiah was changing hands
at Rp 7,650 to the dollar

"Under a stronger rupiah, our producers can seek out new loans
to expand without being crushed by the high cost of financing it,
and at the same time, still earn profits," said Mansur.

Any expansion in capacity or upgrade of machineries undertaken
by pulp and paper producers typically involve a large amount of
capital, the bulk of which usually is borrowed from a financial
institution.

For instance, a new machine can easily cost a few hundred
million dollars.

Mansur is scheduled to speak on the final day of the 4th
Annual Asia Pacific Pulp and Paper conference organized by AIC
Worldwide.

In calender year 1998, Indonesia's export income from pulp,
paper and paper-related stationery estimated at $3.5-$4 billion,
up from $2 billion in 1997, Mansur said.

The increase in export income is from a combination of the
sharply weaker rupiah and a collapse in domestic consumption, the
chairman said.

"Local consumption has gone down sharply and hasn't shown any
sign of improving. So we have to export. It is the only option
for us," Mansur explained.

According to Mansur, domestic usage of paper in 1998 is seen
at 1.26 million metric tons, down some 62 percent year-on-year,
from 3.28 million tons the previous year.

Indonesia's export of paper in 1998 is estimated at 4.92
million tons, up about 174 percent year-on-year, from 1.8 million
tons in 1997.