RI companies believe crisis is over: Survey

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)