New strategy needed to solve crisis

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