Shoe exporters suffer despite rupiah's fall

By Devi M. Asmarani

JAKARTA (JP): Layers of problems, mostly regarding the import of raw materials, are impairing Indonesian shoe exporters from benefiting from the rupiah's sharp fall in value.

The country's footwear industry has, by and large, been unable to become more competitive in the international market even though the rupiah has fallen 70 percent in value against the U.S. dollar since last July.

On the contrary, orders have been shrinking over the past two months, mostly because foreign buyers no longer have confidence in the reliability of local producers.

Data from the Association of Footwear Producers shows that shoe exports in January fell 7.86 percent to US$80.02 million compared to the same period last year.

This month, exports fell a further 10.6 percent to $80.15 million year-on-year.

The data was based on the exports of four major brands which account for 70 percent of shoes made in Indonesia: Nike, Reebok, Fila and Adidas.

Association chairman Anton J. Supit said the shriveling orders were due to a wearing out of confidence from international buyers over Indonesia.

"Many buyers have been getting the wrong signals that the political situation in Indonesia is very unstable. They are afraid that we won't be able to supply their orders," Anton told The Jakarta Post Thursday.

Added to this uncertainty, problems regarding the issuance of letters of credit (L/Cs) hover over the shoe industry, an industry still highly reliant on imported materials.

Since last year, international banks and foreign buyers have been reluctant to accept L/Cs issued by Indonesian banks, fearing the latter would be unable to service their commitments as the rupiah continued to tumble against the dollar.

Last month, Bank Indonesia, the central bank, pledged to guarantee all local bank credits.

But Anton said this guarantee has not been effective as international banks and suppliers still requiring confirmation from foreign banks here.

Credibility is not the only problem because the country's banks are also drained of liquidity, he said.

Banks no longer receiving credit lines from international banks now require importers to pay a margin deposit worth the total value of the L/C.

This means shoe companies are no longer enjoying credit lines from the issuing banks.

At the same time, many companies are faced with maturing debts from their L/Cs issued three to six months ago, he said.

Several countries have pledged to help Indonesian importers.

The United States has promised to provide a $460 million facility to import American-produced commodities, including leather, through 31 banks appointed by the U.S. government, Anton said.

Japan's Export Import bank will also provide over $500 million in loans to the central bank to be injected into local banks, he said.

Germany has committed to give a $250 million loan facility to help develop small and medium businesses, while Australia has agreed to guarantee L/Cs for Australian imports, he said.

"But these have not materialized, and meanwhile something must be done to help the producers themselves," Anton said.

He is worried that if the situation persists, there could be delivery problems.

"There hasn't been problems delivering orders now, as long as we can manage to pay the 100 percent deposit," he said.

"But our ability to conduct business in cash will only last one to three more months," he said.

He said the central bank must support producers so that they would not be required to pay the deposit.

If the L/C problems are resolved, and if political tensions ease after the March presidential election, Anton believes the shoe industry may pick up again.

But the situation must be resolved soon, he said, or the companies would lose their customers.

"Shoes are fashion items. If delivery is late, the companies will lose their marketing opportunity, so they don't want to take a risk," he said.

Around six shoe factories located here and in Surabaya, East Java, have already shut down and lower production has forced companies to lay off about 20,000 of their workers, he said.

Companies are stopping or slowing production because they cannot compete with more competitive producers such as those of China, he added.

China's productivity is much higher, while the cost is much lower, he said.

"Prior to the crisis, we could not suppress the price like China's products, but now that the crisis could make our products cheaper and more competitive, we are burdened with these problems," he said.