In addition to declining exports, Indonesia’s industry is under another threat of equally great significance - a continued drop in imports of key raw materials.
Such conditions could have a major impact on the unemployment rate, said Edy Putra, a deputy to the Coordinating Minister for the Economy, on Tuesday.
“We still have a surplus trade balance but the significance is relatively small, as domestic production growth raises a concern as imports of raw materials continue to drop,” Edy said.
“That means there is a trend to reduce productivity of domestic industry, which will affect the unemployment rate sooner or later,” he told The Jakarta Post.
While exports have been in decline since October, with January’s on-year exports dropping 36 percent - the steepest drop in the past 22 years, imports of raw materials crucial for domestic industrial production have gone south as well.
The Central Statistics Agency shows (BPS) data shows that raw material imports have been plunging since last October.
The country imported around US$6.3 billion of raw materials in November, less than the $7.9 billion recorded in the previous month. The trend continued as raw material imports fell to $5 billion in December and to $4.5 billion in January.
The continuing drop in exports and imports enabled the country to record a marginal trade surplus of around $0.8 billion for the January trade balance.
According to the ministry, the continued drop in raw material imports points to a decrease in industrial output in the near future. When a company, be it export or domestic oriented, cannot operate at its full production capacity – then reduction in the workforce may follow.
Export-oriented industries have so far laid off around 25,000 workers by January, and are planning to lay off another 25,000 more in the coming months.
Edy however, expects that the government’s stimulus package would generate more robust economic activities and help compensate for sluggish growth in domestic industrial output.
The recently approved Rp 73.3 trillion ($6.08 billion) stimulus package is expected to provide jobs for around 3 million workers in the midst of potential large-scale layoffs from companies hit by the global economic downturn.
“We will start the stimulus package designed for infrastructure projects [which will provide the most jobs] next week,” Edy said.
The stimulus package component for infrastructure development in rural areas is about Rp 12.2 trillion.
Edy said the government had set up several other plans to increase domestic productivity and to secure employment.
“We have held discussions last week with several sectors such as textiles, shoes and electronics on the policies to secure the livelihoods of these industries during the crisis,” he said.
Edy revealed the government had received inputs from industry to improve productivity by promoting demand, both domestically and abroad, while at the same time reducing dependency on the part of companies on imported raw materials.
“For example, the textiles industry asked for our help in protecting the domestic market share, whilst we also plan to improve our trade diplomacy abroad because we want to diversify our textiles market in Latin-America and the Middle East,” he said.
“The electronics sector also asked for more domestic protection because there are many mediocre imported products flooding the country with lack of legitimacy.”
The ministry had asked, on behalf of the industries, for the Transportation Ministry to charge for portsservices in local currency
“We will also ask the export financing agency (LPEI) to begin its role in refinancing, re-discounting non-letter of credit export bills and to provide insurance such as via the People’s Business Loans (KUR),” he said. (hdt)
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