RI companies believe crisis is over: Survey

JAKARTA (JP): Indonesian beleaguered manufacturing companies believe that the economic crisis has passed and the recession has bottomed out, according to a government survey.

The survey, conducted by the National Development Planning Board (Bappenas) and the Central Bureau of Statistics (BPS), said that most of 850 firms surveyed expected their production levels to increase or remain stagnant in the first quarter of 1999.

"Firms were more optimistic about increases in output in food processing, garments and chemicals and rubber than they were over electronics and textiles," said a report on the survey's results released here on Tuesday at a World Bank discussion.

Bappenas and BPS surveyed some 850 firms in key manufacturing sectors -- textiles, garments, food, electronics, chemicals and rubber processing -- between November 1998 and February 1999.

The survey, funded by the World Bank, aimed to gauge the impact of the economic crisis on the companies.

The government, however, warned that the results of the survey should be treated as tentative because the initial design to analyze 1,200 firms was not completed.

"It is still too early to know whether capacity utilization has stabilized, although more than 60 percent of the firms surveyed did not anticipate further reductions in output in the first quarter of 1999," the report said.

The survey concluded that capacity utilization rates dropped to less than 60 percent in October 1998 in all of the leading manufacturing industries compared to more than a 80 percent capacity utilization rate in 1996.

The survey said that the sharp decline in demand for the industries' products and the effect of the depreciation of the rupiah in raising input costs were considered as the major causes of output decline during 1998.

The rupiah started to tumble against the U.S. dollar in August 1997, and underwent severe volatility in its exchange rate as many of the country's firms had excessive dollar-dominated debts.

The economy, the production sector of which relies heavily on imported raw materials, shrank by more than 13 percent last year.

"However, the results of the survey suggest that firms with substantial foreign currency liabilities are not the most adversely affected firms during the crisis," the report said.

"Firms with foreign currency borrowings actually had lower reductions in capacity utilization rates and workforces compared to firms with no foreign currency denominated debt. This because many of the firms with foreign currency denominated debts are also large and medium-sized exporters, which are less affected by the economic crisis."

However, foreign debts would be a problem for domestic- oriented firms which had not hedged their positions, the report said, adding that only 27 percent of the firms survey hedged some of their debts.

The survey suggested that to achieve economic recovery in the short run, a recovery in aggregate demand including new investment was essential.

Analysts, however, have said that boosting domestic demand would not be enough because an essential condition for a recovery was the restructuring of the banking and corporate sectors, which many say have been progressing too slowly.

The report suggests that the least-affected sectors, like the export-oriented and resource-based sectors, be given financing priority in order for them to shift to new markets quickly.

"It is therefore important to ensure that impediments to resource allocation are removed," it added, pointing out there remains an extensive web of regulations, approvals and permits required to establish and operate businesses in the country. (rei)