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.