Albion Monitor /News

Depression Hits Indonesia Economy

by Kafil Yamin

Only 2 of 30 factory machines still in use
(IPS) BANDUNG, Indonesia -- Edi Hidayat looks out at his once-bustling textile factory here, most of whose 30 machines now stand idle. Two machines are working, run by just one weaver.

Hidayat, whose factory produces the well-known Majalaya "sarong," was recently forced to ground 28 of his machines and lay off the same number of the workers.

"In normal times, all these machines would be working because we get enough orders. But it would be crazy to run all machines now," Hidayat said. "This is the only way to survive. I should cut production cost to the minimum level."

All textile firms in area expected to soon close
While Hidayat has been facing competition from large-scale enterprises, today he is being driven under by the economic squeeze caused by the depreciation of the Indonesian currency, the rupiah, and the country's general economic malaise.

With the rupiah's slide, producers like Hidayat are burdened with higher costs for imports and raw materials, but cannot raise because they are few buyers.

Farmers who used to buy Majalaya textile, which is named after a district here in Bandung, southeast of Jakarta, are themselves suffering from a prolonged drought that has wrecked harvests.

In Majalaya, at least 32 textile firms have closed down, throwing 1,150 workers out of work. Hidayat, also chairman of Majalaya Textile Cooperatives, believes the remaining 160 firms in the area will go the same way. "We don't see the light at the end of the tunnel," he said.

Trouble is also brewing in the Bandung district of Cibaduyut, where family-based shoemakers are going bankrupt, inventory is piling up, and cash-short factories are unable to pay their debts. Some 8,000 workers have lost their jobs and up to 13,000 more residents may lose theirs in the next few months.

Burdens heaviest on 80 percent of the people who earn less than $250 a year
In this country of 204 million people, Indonesians are bracing for a period of sharply slower growth and fiscal austerity, the likes of which the country has not seen for decades.

Erna Ermawati, senior researcher at Akatiga, a Bandung-based center for social studies, says Indonesians are feeling the pinch from economic jitters the country has been undergoing in the wake a regional currency and economic crisis that began with Thailand in July.

While the abnormally long dry season has hurt the economy, Ermawati said: "What is really happening is that there is not enough cash within the community."

Economists had first predicted that the economy would continue to grow by eight percent a year as it has during most of the past two decades. But they have now cut forecasts to under five percent growth next year.

Inflation is expected to hit a double digit figure early next year, up from five percent in the first six months of 1997. Unemployment is also expected to soar as businesses struggle to repay huge dollar-denominated debts with a currency whose value has fallen by more than 30 percent since June.

The currency crisis and its wider effects on the economy have cut Indonesia's growth momentum, forcing it to seek help from the International Monetary Fund (IMF). But IMF help, which came via a package of more $30 billion, comes with strict conditions that force Jakarta to tighten its belt.

Among others, it has to deal with total public and private debt of $118.5 billion. Finance Minister Mar'ie Muhammad sees the government's fiscal deficit reaching $2.64 billion this year. And the picture has only worsened with the rupiah's fall.

The poor, already restless with Indonesia's gaping rich-poor gap, will suffer the most from spending cutbacks. While per capita income stands at $1,000 a year, University of Indonesia economist Faisal Basri says 80 percent of the people earns less than $250 a year.

The IMF also wants the government to remove subsidies for sensitive items Indonesians have long been used to, such as those for food, fertilizer and fuel. While that may make economic sense, removal of subsidies are a socially and politically sensitive step that may spell trouble for the government.

"The IMF has an image that it will cut everything (for the poor), which could destabilize the political situation in Indonesia," said Loekman Soetrisno, professor of rural development at Yogyakarta's Gadjah Mada University. "If they tighten the belts of the poor, they must be prepared to do it for the rich as well." Higher prices will be all the more painful at a time of rising unemployment, economists say. Already signs of people losing their jobs are evident.

"Life is getting harder and harder and (government officials) just cannot continue to fool the community"
Construction sites in Jakarta are grinding to a halt, the first visible casualties of a declining property market and surging costs of imported building materials. Building activity has fallen by 60 percent in the capital.

Export-oriented industries are supposed to benefit from a weaker rupiah, but factories have little access to expansion capital drying up as Indonesia goes through a crisis of investor confidence. Soaring interest rates make bank loans impossible. As a result, Indonesians like the residents of Majalaya and Cibaduyut are skeptical about the future and are in no mood for a painful stretch of austerity.

"I often see ministers and economic experts repeatedly boasting their optimism on television, that the crisis will soon be over and we will not go worse because we are different from Thailand, Indonesian economic fundamentals are good. But they have never told us when exactly the crisis will be over," said Djamaludin, a former dealer of Cibaduyut shoes.

He asked: "If they are right and doing a good job, then why are we going through this hardship?"

Added Djunaedi, a shoemaker-turned vegetable vendor: "They pointed at skyscrapers, modern buildings, and wide toll roads as proof of the success of Indonesian development. But we don't eat buildings. We even pay more for toll roads and rising school fees for our children."

The average person judges the economy by what they experience daily, said Amin Rais, chairman of Indonesia's second largest Muslim organization, Muhammadiyah. "Whether or not Indonesia's fundamentals are good remain debatable. But the community refers to the reality of the situation -- job opportunities are reduced, prices of basic needs are steadily rising, unemployment increases. And life is getting harder and harder."

"They (government officials) just cannot continue to fool the community. They have their own logic. Most importantly, they must have a conscience," Rais pointed out.

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Albion Monitor December 23, 1997 (

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