Missing the point

Missing the point

If we read academic articles, we get the jitters. I repeat my
suggestions from in the past to those people in the Directorate
of Higher Education, Bandung Institute of Technology and Petra
Christian University in Surabaya, that the academics should get
out every three years, go on "sabbatical leave" of one year and
really work in industry and trade.

They will never again voice such nonsense in the way the
question "How much longer can the Indonesian public and companies
survive" was answered (Investors' return needed to boost rupiah,
Dec. 19).

First, it is easy to do arithmetic on the way how industry may
slide into dark oblivion:

1. The medium and large industries' dependence on imported
materials lies between 10 percent and 70 percent of their sales
value.

2. When the exchange rate increases by 100 percent between
July 1997 and now, the consequences were:

(a) They need 100 percent more rupiah to finance their
imports;

(b) Their costs increase because other domestic suppliers are
increasing their costs/sales price, and also because there is
higher interest for the new borrowings, and longer credit terms
because their customers and contributors prolong the paying
periods;

(c) They have to increase their costs further because of an
increase in bad debts (customers come into problems of their own
and abuse the situation, becoming nonpayers).

3. They also need to increase their sales price, or else their
funds will dry up.

Now, points 1 to 3 are easy to execute on paper, but in
reality point 3 has a limit because salaries of consumers were
not raised accordingly, and contraction due to monetary reasons
shocks our economic environment.

If banks are reluctant to supply the increased demand for
working capital, the industry is strangled. After a point of
halting the industrial activities, which includes laying off
workers, a restarting will need some two months to six months due
to the logistical time frame of imports from overseas.

The monetary efforts are amplified by the strongly reduced
lending by our banks and maybe reluctance of the government to
increase rupiah circulation. This contribute to snowballing
layoffs to reach three million to four million by the end of
January 1998.

Exports in certain sectors are down, such as to Korea (plywood
now near zero) and Japan, Taiwan and inter-ASEAN, and cannot be
compensated by sharp increases to North America and Europe, where
every ASEAN country is also scrambling to do the same.

Second, if they have used up their cash, as Sri Mulyani said
in her article, where will they get fresh cash to restart their
industrial engine, distribution and sales?

They may have lost most of their customer circle and the good
staff and workers. Or the company will be bought cheaply for next
to nothing by her suggested foreign investors, and they may
prefer to bring in another load of Indian and Filipino staff and
technicians.

The lady is simply unable to anticipate the disaster already
in full swing.

Y. SANTO

Jakarta