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