Textile export earnings seen to drop about 35%

JAKARTA (JP): A shortage of raw materials may cause the country's textile export earnings to fall about 35 percent to US$4 billion this year from $6.2 billion in 1997, the Indonesian Textile Association has predicted.

The association's chairman, Bambang Riyadi Soegomo, said yesterday the supply of imported materials had become scarce because of financing problems.

"Our condition is very bleak currently, since all cotton and polyester supply is imported," Bambang, a member of the People's Consultative Assembly (MPR), said after yesterday's general sessions.

About 95 percent of textile materials are made of imported cotton, he said.

Importing has become difficult for textile companies because foreign banks will not accept letters of credit (L/Cs) issued by local banks, he said.

The government's pledge to provide a facility which guarantees exporters' L/Cs for imported raw materials, had not come to the rescue, he said.

The pledges of several foreign countries to guarantee L/Cs had also not materialized, he said.

"Everything announced to the media about facilities and guarantees for us have been mere promises, and are not applicable at this point," he said.

The monetary turmoil, prompted by a dramatic drop in the rupiah's value against the dollar, triggered a crisis of confidence in Indonesia's frail banking sector following the government's closure of 16 insolvent private banks at the end of last year.

International banks have been hesitant to accept letters of credit issued by local banks, and importers are forced to ask local industries to finance their imports in cash.

As a result, many textile producers have suffered a liquidity problem, he said.

Bambang said the textile producers, which market most of their products on the domestic market, faced more serious problems because the plunge in the rupiah's value of about 70 percent since July last year, had caused an increase of about 300 percent in rupiah-based prices of imported raw materials.

"If the rupiah's value is set at Rp 5,000 to the dollar we could still manage, but if it is more than Rp 7,000 there is nothing we could do."

The rupiah closed at Rp 9,400 against the dollar at the close of trading yesterday, down from about 2,500 last June.

Bambang said members of the 8,000-strong association were home industries.

Between 10 and 15 companies had already laid off about 200,000 employees, he said.

"We try to make laying off the last resort."

He said he urged the companies to begin slashing their production and reduce the shifts of employees instead of sacking them.

For example, they could divide their employees into two groups, with each group working every other month, he said.

"We could help a little with the raw materials, as long as they (the companies) reduce production," he said.

"We have to evaluate the structure of our textile industry." (das)