New strategy needed to solve crisis

When I first arrived in Indonesia in 1985 the buzz word of the day was "the export orientated economy". Indonesia was in a privatization drive and funds for government departments were running dry.

I was working on a large program providing training in trading and entrepreneurial skills. Often, promising individuals, whom we sponsored through local and overseas training courses, were poached by large private companies on completion of their training. Capable and educated youths were lured by promising career opportunities in the private sector.

When I came back in 1992, this time on an enterprise development program, Indonesia was joining in on the "globalization drive". Private companies were growing into large conglomerates with their own banks and ambitious plans. There was no space for small to medium sized enterprises. As before, potential entrepreneurs were being attracted by high salaries in large conglomerates and turning their backs on more challenging small enterprises. A favorable rupiah to dollar exchange rate and an aspiration toward glamorous lifestyles pushed people onwards in a quest for ever more expensive imported consumer durables until very recently.

In 1985 the government was still recuperating from the failure of the Credit for Small Investment (KIK) and Credit for Permanent Working Capital (KMKP) programs. For over 10 years the government attempted to create an entrepreneurial class and supported small scale industry through special credit schemes and guarantee systems.

The programs didn't bear the expected fruits and went bust. How small these losses now look in the context of the present financial fiasco.

By 1992 banks were too busy serving their corporate clients and implementing consumer credit schemes. The fate of small enterprises was of little or no concern. Small enterprises were too small, had high administrative costs relative to their size and were considered too risky -- little was known about their assets and track record.

The only way in which small enterprises could be granted credit was to link up with an existing conglomerate, which played a Bapak Angkat, or (small and big company) partnership role. This would guarantee their loan. These difficulties meant very few small enterprises managed to negotiate loans for investment or long-term working capital.

Even if the rupiah returns to an exchange rate of Rp 5000 to the U.S. dollar, there are many products that will not return to supermarket shelves and supplier networks for a long time to come. Therefore, local producers, who always asked for, or complained about the loss of, protection now have a golden opportunity to prove their worth.

In the coming months factories and service companies will be screaming for alternative sources of supply. Solutions will have to be found locally. Companies that survived the credit crunch and plan to continue operating will quickly need to find alternative sources of raw materials and spare parts to maintain their machinery.

Six months ago they could import most of their needs. Today they will have to look for local solutions. From elevators in high rise buildings, to ink in printers, solutions will have to be found, and quickly. Some industries will crash, others will adjust.

While the banking sector and the big corporations are preoccupied sorting out their own problems, a unique chance will exist for the Ministry of Industry and Trade to carve a new and challenging strategy aimed at cultivating small and medium size enterprises in areas likely to face supply shortages in imported inputs to production in the coming months. The new strategy could include training and retraining programs.

I believe that with a well trained and skilled work force, a flexible and creative industrial base and a responsive financial service sector, Indonesia will become a better place to do business and a prime choice for "long-term" investors.

PH LYSSENS

Jakarta