Restructuring of textile industry needs $505 million

Zakki P. Hakim, The Jakarta Post/Jakarta

The national textile and textile articles industry needs at least US$505 million to "restructure" production facilities, said the Ministry of Industry and Trade in announcing the result of a recent survey on the industry on Monday.

The survey, carried out by state-owned surveyor PT Sucofindo, revealed that nearly 20 percent of 4,109 companies surveyed from 2001 until July 2004 needed to rehabilitate or replace their machinery to continue operations or stay competitive, ministry director of textiles and textile product industry Luky Hartini told a media conference.

The remaining 80 percent claimed that they did not need such a restructuring program as their machinery was relatively new -- less than 10 years old.

The survey was carried out as the government was willing to help the industry, which was formerly a major contributor of foreign exchange earnings to the nation but is now fighting hard to survive competition against China and other, poorer nations.

Luky said that the ministry would first focus the restructuring program on the finishing, weaving and spinning subindustries, whose products (fabric and yarn) were in the highest international demand in comparison with other Indonesian textile products.

Yarn and fabric accounted for 43 percent and 23 percent of Indonesia's export volume from 2001 and 2003.

Luky went on that since the government had a limited budget, the ministry would assist the industry in finding ways to get fresh funds from other sources, starting from national banks.

The ministry said earlier that it had met with Bank Indonesia last week and requested the central bank review its policy of discouraging private banks from funding the textile and apparel products industry due to a large number of large bad loans in the sector.

BI requires a healthy industry to have nonperforming loan (NPL) at under 5 percent, while the textile industry had an average NPL of up to 10 percent.

"Eventually, BI understood that not all players in the textile industry had bad debts, thus agreeing to review the policy and encourage private banks to examine clients, instead of the sector as a whole," said Minister Rini Soewandi recently.

According to Rini, industry associations and private banks, namely Bank Mandiri, Bank Danamon, Bank Negara Indonesia 46 and Bank Rakyat Indonesia, would meet this week to discuss the details.

The Sucofindo survey showed that of the 774 textile manufacturers that need restructuring, 703 were garment makers, which needed a combined $206 million and 36 were integrated textile producers needing $247 million. The remaining 35 companies were associated with spinning, weaving, knitting, printing, dyeing and finishing.

Luky admitted the survey could not comprehensively illustrate the complete situation with regard to the nation's textiles and textile products industry, as some 10,000 companies were registered in the ministry, while only 4,109 of them participated in the survey. Most of the participants (88.6 percent) were garment makers.

Furthermore, she said that Sucofindo had sent questionnaires to more than 6,000 companies, but only 4,109 responded. The other companies might have been closed, changed business or fictitious.

"But we will exclude them (the nonresponding companies) from our list of future programs," she said.

As a follow-up on the survey, the ministry had asked Sucofindo to produce a more comprehensive map of the national textile industry, Luky said.

According to the ministry, the utilization of production plant capacity at the industry dropped significantly to 65.1 percent last year from 84 percent in 1999.

The industry, which absorbs 1.2 million workers, was the second-largest contributor of foreign exchange earnings among non oil and gas industries last year, after the electronics industry, with an export value of $7.03 billion or 16.22 percent of total non-oil and gas exports last year.