Small businesses face bankruptcy as crisis worsens

Small businesses face bankruptcy as crisis worsens

JAKARTA (JP): Many cash-strapped small and medium-scale
businesses may soon halt operation as the economic turmoil is
worsening, an official of the Industry and Trade Ministry has
said.

The head of the Small Industry Development Division in the
ministry, Atih Surjati Herman, said Friday the small companies'
cashflows have mostly dried up as they could no longer afford to
borrow from banks.

The current high lending rates made bank loans too expensive
for small scale companies, Atih said, adding that the decline in
orders both from local and foreign buyers made things worse, she
said.

She said that some small and medium enterprises were still
able to survive the crisis by cutting production costs or
resorting to cheaper raw materials.

"I cannot disclose the exact statistics of the businesses, but
as an example, in one small-industry village, only about 20
percent of the businesses still produce ever since the crisis,"
Atih told reporters Friday.

Those accounted for small scale enterprises are businesses
with assets value less than Rp 200 million (US$13,986), excluding
the price of land and building, as well as self-employed
entrepreneurs, she said.

The Director General of the Farm and Forestry products,
Sujata, said some small scale industries in the food and beverage
sectors had to find cheaper materials for their products amidst
soaring food prices.

"There haven't been reports of any closures yet but many of
the businesses had to find alternatives to continue running,"
Sujata said.

He cited small producers of bakpau, the Chinese-originated
steam buns mostly sold by street vendors, now replaced wheat
flour with cheaper kinds of flours to lower production cost.

The breadmakers would mix flours such as tapioca and cassava
flours with the wheat flour, as the latter had become much more
expensive, he said.

Export

Even export-related industries have to deal with financial
blows during the crisis.

The ministry reported at least 28 companies of the total 586
medium and large scale producers of leather and leather products
had laid off 18,293 workers so far this year.

This included 16,948 workers of sports shoe companies, 524
employers of the non-sport shoes companies, 46 people in the
leather tanning industry, and 357 people in the leather products
industry.

Meanwhile, the remaining 8,574 small-scale makers of leathers
and leather products now only produced three times a week from
six times a week normally.

The Director General of Various Industries, Doddy Soepardi,
attributed the industry's downfall to its high dependency on
imported materials and on orders of foreign buyers.

Doddy said import contents made up 70 percent of production,
while international orders had shrunk significantly as foreign
buyers were turning into the country's competitors: China,
Thailand and Vietnam.

In the first three months of this year, exports of leather and
leather products dropped 38 percent to $374.02 million from
$600.04 million year-on-year, he said.

In the same periods, imports had also dropped by 43.3 percent
to $60.61 million from $106.88 million.

Doddy said scarcity of leather supplies in the country forced
producers of leather products to import most of the materials
too.

Most producers of raw leather such as wet blue leather
preferred to export their products, since the government lifted
export tax on raw leathers in conjunction with the International
Monetary Fund's economic reform signed in February, he said.

This resulted in a 300 percent increase in exports of wet blue
leather in March to 180 tons compared to the previous month, he
said.

The wet blue leather is now exported at Rp 16,000 per square
foot, up from Rp 8,000 per square foot, he said.

The producers of the raw leather would rather export their
products, because the purchasing power of their local buyers had
declined sharply, he said.

Doddy estimated exports of leather and leather products would
reach US$3 billion this year, a slight rise from $2.63 billion
last year.

He said Indonesia controls 70 percent of the global market of
leather gloves, and 40 percent of the global market of Nike
sports shoes. (das)