Indonesian textile industry shackled by currency crisis Unemployment mounts rapidly (Washington Times)

Washingotn Times, April 9, 1998

TAMBUN BEKASI, Indonesia – With a quick and practiced hand, the young girl snips stray threads from the red, white and blue Tommy Hilfiger shirt stretched out on the board in front of her, keeping up a running conversation with the girls to either side, all doing the same.

A few yards away, hundreds of Indonesian women are pressing shirts with hand-held irons, while beyond them, row upon row more are bent over sewing machines creating shirts imprinted with the logos of American fashion names like Ralph Lauren, Levi-Strauss, J. Crew, Eddie Bauer, London Fog and many more.

The 2,500 Indonesian women producing some 36,000 shirts a day in this cavernous factory represent just a tiny aspect of Indonesia’s most powerful economic weapon: cheap labor.

“We follow the government’s procedures and pay them the minimum wage,” factory manager David Suyandi proudly told a visitor. “And we also have an automatic two hours of overtime.”

At current exchange rates, that is less than $1 a day. Yet these women count themselves lucky. Across Indonesia, textile manufacturers – who last year exported $6 billion worth of clothing – are dismissing workers and shutting their doors.

The industry’s Achilles’ heel is that Indonesia is little more than a giant assembly line. As much as 80 percent of the content of clothing manufactured here is imported. But with the current crisis, imports have ground to a halt. A key industry that forms a cornerstone of the Indonesian economy is being brought to its knees.

“Our condition is very bleak, since all cotton and polyester supply comes from abroad,” said Bambang Riyadi Soegomo, chairman of the Indonesian Textile Association, which predicts exports this year will be down 35 percent.

With the collapse of the economy, foreign financial institutions have refused to accept letters of credit issued by Indonesian banks. As a result, most manufacturers have found themselves cut off from raw materials.

The Indonesian government has announced it will guarantee letters of credit for key export industries like textiles, but so far, foreign banks have balked.

“Officially, they made the announcement, but it’s not as simple as that,” explained Edwin Syahruzad, a research analyst. “Two parties are involved in the transaction, and trust and confidence are so eroded, few are willing to take the risk.”

More than 200,000 textile workers have lost their jobs so far, joining an estimated 8 million Indonesians laid off since the crisis began. Karwell Indonesia, which owns the Bekasi factory and is one of the country’s largest textile exporters, has managed to survive by drawing on the strong international relationships it has built up over the years.

“Everybody is scared by this situation – our bankers, our suppliers and our customers,” said Ridwan Halim, a director of the company. “So we invited everyone in to discuss the situation and make our relationship even better than before.”

Its long track record, and firm contracts with some of the world’s best-known name brands have meant that Karwell has been able to persuade banks in Europe and the United States to back its letters of credit.

It has also been able to obtain other backers through its subsidiaries in Singapore and Hong Kong.

Most companies don’t have that kind of leverage.

Hardest hit are manufacturers selling locally. While clothing exporters are paid in dollars, which they can then use to buy raw materials, local producers earn their revenues in rupiah, which have lost 70 percent of their value since last July.

For them, the price of imported raw materials has quadrupled.

Many, like Great River Industries, the largest manufacturer of name-brand clothing for the domestic Indonesian market, are shifting their focus abroad.

That would appear to play into the fears of U.S. producers and labor unions, concerned that the market will be flooded with cheap Asian products.

“It’s not a realistic worry,” said Shah Riyal, an analyst who tracks the textile industry. “The U.S. is a quota country, and Indonesia has already filled its quota. The only way we can export more is if Washington increases the allocation.”

American consumers shouldn’t expect the price of their favorite clothing brands to plummet just because Asian economies have collapsed.

“We’ve given our customers some small discounts, but with such a high portion of our costs in dollars, our flexibility is limited,” said Karwell’s Halim. “Besides, they recognize this is only short-term until the economy recovers.”

But recovery remains a distant hope. In the meantime, many companies remain cut off from raw materials and – with local interest rates at 45 percent – starved of the financing they need to survive.

Already, sewing machines at two factories in the industrial zone where the Karwell facility is located outside Jakarta have fallen silent, their operators joining the swelling mass of Indonesia’s unemployed

Illustration

Photo, Some 8 million Indonesians, including 200,000 textile workers, are unemployed, making street-corner beggars ubiquitous in Jakarta., By Reuters

Credit: THE WASHINGTON TIMES

Copyright Washington Times Library Apr 9, 1998

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