Losing shine amid drop in overseas demand

Losing shine amid drop in overseas demand
Still in difficult position

Hendarsyah Tarmizi
The Jakarta Post
Jakarta

The textile industry, once considered the economy's most
promising sector, is losing its shine. Low demand, internal
financial problems and a lack of efficiency have left the
industry in a difficult position.

The industry has been a major engine of Indonesia's economic
growth for the past several years. As one of the country's major
foreign exchange earners, the textile industry has also played a
critical role in providing jobs for millions of Indonesian
workers.

However, recent developments have brought an end to the
industry's charmed life. Although the sector remains the largest
contributor to the country's non-oil exports, its leading role in
raising foreign exchange is diminishing.

Low overseas demand, internal financial problems, industrial
inefficiency, and non-economic factors such as security problems
and increased labor disputes have made the climate difficult for
the industry's major players.

"I have run out of words to describe how severe the situation
being experienced by Indonesian textile and garment producers
is," said Ade Sudrajat, the secretary general of the West Java-
based Association of Indonesian Textile Producers (APTI).

Ade said that, in such difficult conditions, the textile
companies in the province had no choice but to lay off workers in
a bid to keep themselves afloat. The lay-offs are continuing, as
overseas demand continues to decline, and at an increasing rate.

At least 100,000 workers in West Java, one of the country's
major textile producing centers, have lost their jobs due to poor
overseas demand. Lay-offs have also been initiated by textile
producers in such areas as Jakarta, Central Java, East Java and
Batam.

The conditions facing the industry deteriorated further
following the Sept. 11 terrorist attacks on the United States.

Major buyers of textiles and garments reduced their orders out
of fear that the terrorist attacks would spread worldwide,
crippling the global economy in the process.

Buyers of Indonesian textile products were not immune from the
anxiety, and some decided to suspend their long-term orders. For
small and medium-sized companies, the suspensions were to spell
the end of their operations.

Making things worse was the surge in anti-American sentiment
in Indonesia following the attacks. Radical Muslims threatened
to launch "sweeping" operations against American citizens in
protest at the U.S. led strikes on Afghanistan, where the
suspected mastermind of the WTC bombing, Osama Bin Laden, was
believed to be hiding. The threats scared away foreign investors
and buyers.

The fall in overseas demand in the aftermath of Sept. 11 has
been just one of many problems confronting the textiles sector
over the past three years.

The regional financial crisis that spilled over into Indonesia
in late 1997 and brought the economy to its lowest point in
recent history, posed severe problems for major Indonesian
companies, most of whom had raised U.S. dollar-based loans to
support their operations.

The sharp drop in the value of the rupiah against the U.S.
dollar has almost tripled the rupiah cost of their U.S. dollar
denominated debts.

Textile and garment producers have not been immune to such
problems. Besides facing difficulties in financing their foreign
debts, textile companies have also been lacking the financial
support needed to cope with the surge in prices of imported
materials.

Exports of garments and other related textile products, which
reached $6.42 billion in 1996, fell to $5.16 billion in 1997 when
producers started to feel the pinch of the crisis. Exports
deteriorated further and dropped to $4.99 billion in 1998 when
the financial crisis, which had led to the downfall of the
authoritarian leader Soeharto after 30 years in power, reached
its peak.

Exports rose again to $6.8 billion in 1999 thanks to an
improvement in the political situation. The more conducive
environment the following year encouraged foreign buyers to look
more favorably at Indonesian goods.

In 2000, exports of textiles and garment products reached a
record level of $8.23 billion. With an improvement in the level
of business confidence, exporters were able to take full
advantage of the weak rupiah in competing on the world market.

However, the world economic slowdown the following year
reversed the trend. In 2001, Indonesia's total exports dropped by
9.8 percent -- the largest drop recorded in the last 12 years --
to $56.03 billion, partly due to a fall in non-oil exports.

According to data provided by the National Statistics Bureau
(BPS), non-oil exports dropped by 9.11 percent to $43.40 billion
last year.

Although the statistics agency did not reveal the combined
value of textile and garment exports in 2001, the trends were not
encouraging.

Existing data only cover the value of unknitted textile
products, which mostly consist of fabrics and threads. Last year,
exports of these products totaled $3.2 billion.

But the data show a slight increase in exports of garment and
textile products to $4.77 billion in the first half of last year
from $4.69 billion in the same period the previous year.

The Association of Indonesian Textile Producers (API)
estimated that textile exports would decline by 25 percent in
2001.

Observers and analysts are generally skeptical about the
industry's ability to sustain export levels this year. Although
the rupiah remains weak against foreign currencies, the country's
textile and garment products still face difficulties in competing
with those from their main rivals, such as Thailand, China and
Vietnam.

According to API, besides the problems related to the poor
cashflow situation, and low overseas demand, the level of
efficiency in the Indonesian industry is also worsening.

The association's vice chairman Lily Asdjudiredja said most of
the knitting machines used by local garment producers were
outdated.

With such poor production facilities, it will be difficult for
the country's garment producers to compete with its Asian rivals.

He feared that the full implementation of the ASEAN Free Trade
Area beginning this year would result in an influx of garment
products from other ASEAN members on the local market.

Instead of benefiting from the expanded market, Indonesian
textile producers could become losers on the domestic front, he
said.

Under the AFTA agreement, import tariffs on goods traded among
ASEAN member countries are to be cut to between 0 and 5 percent
beginning this year. As most countries in the 10-member grouping
produce similar goods, head-to-head competition in the region's
textile market can not be avoided. As a consequence, those whose
products are not competitive will be edged out, even from their
own domestic markets.

On a wider scale, the slowdown in the world's economy will
likely continue to affect textile and garment exports from
Indonesia, which sells a majority of its products to major
industrialized countries such as the United States, European
nations and Japan.

The fact that buyers in the region have switched to garment
products from South America has added to the woes facing Asian
exporters, particularly those from Indonesia.

At least 75 percent of the world's apparel production, worth
more than $135 billion per annum, is imported by the U.S., Europe
and Japan. In 2001, however, apparel exports from Asia showed
only a 5 percent increase, while those from South America rose by
25 percent.