Shoe exporters suffer despite rupiah's fall

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.