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Anti-dumping penalties imposed by developed countries on
textile and garment products from China and Vietnam are expected to
continue to benefit Indonesian textile producers.
With these greater export opportunities, Indonesia's textile industry
expects that exports will increase about 10 percent to US$10.5 billion
this year from $9.7 billion in 2006. By 2010, textile exports are
projected to further increase to $14 billion.
Addressing the audience at the Indonesian Textile Association (API)
annual meeting last week, API chairman Benny Soetrisno said the
industry would need total investments of $5.19 billion within the next
three years to be able to take advantage of wider export opportunities.
In addition to the additional investment, the industry would also need
more supportive fiscal, monetary and labor policies to meet the target.
The API says the industry has yet to benefit from an improvement in the
country's macroeconomic fundamentals in recent months thanks to lower
inflation.
Although the central bank has significantly dropped its benchmark
interest rates, commercial banks are still reluctant to cut their
lending rates to the industrial sector, the association says.
"The lending rates charged by banks is still too high. It is therefore
difficult for us to compete with foreign competitors with such high
rates," Benny said.
According to the association's data, textile export credits in
Indonesia carry an interest rate of about 18 percent, which is far
higher than 7 percent in Vietnam, 8 percent in Mexico, 10.5 percent in
India, 11 percent in Pakistan and Bangladesh's 12 percent.
The textile industry is also lagging behind in terms production
capacity and quality compared to foreign competitors. Most players
still rely on aging that are more than 10 to 20 years old.
In order to support the country's ailing textile industry, the
government has allocated Rp 255 billion to subsidize loan interest
payment for machine revamping.
Earlier this year, the government issued two regulations to provide tax
incentives and to remove import taxes on primary products for textile
production
But this government support has not been enough, the industry group
says. The API has also suggested the central bank not stop the use of
its SBI promissory notes in its market operations to control the money
supply.
According to the association, the local banks have preferred to invest
their funds in the SBI notes rather than lending in the real economy.
"Bank Indonesia (the central bank) should introduce another alternative
in its market operation so that banks will increase their lending to
the industrial sector," Benny said.
He also urged the government to revive the special export credit
facility to help the textile industry. The special credit facility was
introduced in the early 1990s but was removed several years ago due to
misuse by several companies.
At present, most local textile companies focus their export production
on getting higher prices. Many of them have also chosen to market their
products overseas because their products are no longer able to compete
in the domestic market with cheap and illegally imported products from
countries such as China and Vietnam.
The API says that of the 1.01 million tons of textile products sold in
the domestic market in 2006, about 50 percent was illegally imported.
Only five percent was imported legally.
The industry says the high electricity tariff is also a major problem.
Currently, the state owned electricity company PLN charges an average
of 8 U.S. cents per kilowatt-hour, higher than 3 cents in Bangladesh, 7
cents in Vietnam and 7.6 cents in China.
The API also complains of the low productivity of Indonesian labor.
Indonesian workforce productivity ranks the 59th in the world according
to the Workforce and Transportation Ministry, while China ranks 31st.
In contrast, the average Indonesian factory worker's wage is U.S. 0.76
cents per hour, higher than 0.55 cents in China.
The API is demanding the government immediately deliver a new labor law
to give them more favorable legal grounds for outsourcing, work
termination, the minimum wage and severance payments.
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