Indonesia Prepares Contingency Plans To Save Textile And Shoemaking Industries

The uncertainty of the domestic economic situation makes Indonesia's manufacturing industry in a state of anxiety and perplexity. This is because the central bank has set up a benchmark interest rate that is quite high, reaching 7.5%, and implements monetary tightening policy.

The central bank has raised the benchmark interest rate five times since June 2013, from the original 5.75% to 7.5%. It is to slow down, especially import related credit demand. The central bank hopes to cut the current account deficit step by step through this tightening policy and ease the negative emotions of the market.

Central bank data show that the current account deficit in the third quarter of this year amounted to US $8 billion 400 million or 3.8% of GNP, extending the current account deficit of 8 quarters or 26 months.

In fact, in order to deal with the uncertainty of the global economy, the measures adopted by the central bank and the government can be interpreted as a cautious performance.

However, the direct impact of the monetary tightening policy is to urge the banking industry to raise the deposit interest rate at the same time, so that the loan interest rate also soared to over 14%.

For entrepreneurs engaged in processing industry, the loan interest rate is obviously regarded as not conducive to the industry and restraining competitiveness. Subsequently, the weak performance of the industry may lead to a reduction in production and a large number of layoffs.

Industry minister Hidayat also agreed with the industry's above views. In recent months, manufacturing has been showing signs of slowing down. In addition, some investments and expanded production plans were postponed.

Sales in some sectors began to decline, indicating that many factories will reduce their output if conditions do not improve. Once this happens, large-scale layoffs are inevitable.

The industries most prone to large-scale layoffs are labor-intensive industries such as textiles, footwear and electronics. Plus the provincial minimum wage increase is quite high. At the beginning of next year, the industry will be hit hard.

At the same time, the industry faces other problems, such as exorbitant taxes and levies, inefficient transportation and logistics systems, interference with rampant market smuggling, and high dependence on imported raw materials.

The more traditional problems become, the more serious the cost structure of industrial products leads to the lower competitiveness of ordinary industrial products.

With these difficult problems, coupled with the heavy pressure of monetary tightening, manufacturing industry is estimated to grow by only 5.8% at the end of this year, lower than the 6% set by the government.

Although the manufacturing sector performed fairly well in the first half of this year, the growth rate was 6.58%, higher than the 5.92% growth rate of GNP. But industrial concerns must be seriously addressed to avoid excessive deterioration in the second half of the year.

In any case, manufacturing is the main source of the national economy in terms of employing labour. The industrial sector is also the key to economic growth.

Therefore, as an organization responsible for the development of the national industry, the Ministry of industry must immediately prepare contingency plans, especially incentives, to assist the manufacturing sector in maintaining this abnormal economic situation.

Without government intervention and contingency planning, it would be hard for the manufacturing industry to survive this difficult period.