The Impact of Global Crisis on Indonesian Manufacturing Industries

By: Hendra Manurung

The World Bank predicted that the global economy in 2009 to 2010 still shows the grim
conditions (Report on Global Economics Prospect 2008, World Bank). This appears over global
economic growth slowed in 2010 that the more, while the volume of transactions fall in global
trade for the first time in 26 years (1983-2009), the condition after the worst international oil
crisis (1978-1985). In this report, the World Bank estimates cut sharp global economic growth in
the year 2009, which will only reach 0.9% of the volume of trade will be decreased by 2.1%.
Contraction of trade this is the first time since 1982 years ago. Bad debts crisis going on in the
world since mid October 2008, and destroyed the economy stabilization of developed countries
and the poorest countries, to cause the economic growth of developing countries according to the
version of the World Bank estimated that only grow around 4.5%, while the rich countries is
estimated a contraction of economic growth 0.1 percent. Projections from the appear pessimistic
predictions have been made in June 2008, estimates that the economic growth of developed
countries is only 3%, while developing countries experienced growth of 6.4% (World Bank
Report 2008). In November 2008, three different institutions, namely IMF, Director General of
Economic Affairs and Finance of the European Commission, and Fitch Ratings Agency
concluded the economic condition of the world toward global economic crisis, with the declining
economic growth in each area in early 2009.

Prospect Manufacturing Industry 2009 – 2010

The World Bank estimates economic growth in 2009 is only able to achieve 4.4% and recover in
2010 with economic growth at 6% (World Bank Report 2008 on Indonesia). Other ASEAN
countries, such as Thailand is only the economic growth that is lower than Indonesia that is only
about 3.6% in 2009. From different projections, and generally agreed that economic recovery
will occur in early 2010. Prospects of economic growth of Indonesia in the last quarter period
September-December 2008, has begun to indicate conditions worse than in the previous three-
quarter period May-August 2008. However, entering the first quarter, the period of January-April
2009, Indonesian economy is still in the capital and the resilience of both the global economic
crisis in 2009 to 2010. Very different conditions faced by ASEAN countries, like Malaysia and
Singapore, where the role of exports to the GDP of Indonesia is not as much as the neighboring
countries reached nearly 100%. Thus the decline in international export markets does not directly
kill the local industry, because there is still the domestic market that is able to absorb part of the
production industry.

Indonesia economic stability depends on household consumption as the locomotive of growth.

Although the current purchasing power decline, but during October to November 2008, the
government has taken a policy giving incentives to support the increased buying power the
community, with the lower price of fuel oil and other basic material needs, that reduce the burden
of public expenditure. Bank Indonesia also has lower interest rate from the BI rate to 7% level
that is lower (BI Rate on June 2009), so that the expected interest rate loans for consumption
decreased to 8%. In the end this is also encouraging the increased buying power the community.
The flow of foreign capital was also partially re-start, so that the rupiah exchange rate is also
more stable at Rp10.500 – 11.000 per U.S. dollar.

In the past 2008 years, it is known that the development of the national manufacturing industry,
especially steel production has reached 4 million tons, but the achievement of this difficult to
achieve in the year 2009, because almost all sectors, including property development and
infrastructure affected by joining the global crisis (Data Department of Industries RI, 2008).
Besides, the manufacturing industry has also cut the amount of production in 2009, because the
global financial crisis was the most industrial sectors of steel and a reduction in the amount of
labor, told by Erwin Aksa, Chairman of the General Association of Young Indonesian, and
national steel industry to cut production estimate in 2009 of 30% to 40%. Director General of
Industrial Metal, Machinery, Textiles and the Ministry of Industry Aneka said that steel
production is estimated to Indonesia in 2009 reached 30 percent down to 40 percent, while the
number of steel production in 2009 is estimated at only 2.4 million to 2.8 million tons. There are
three factors cause producers to reduce the amount of their production. First, the upstream and
downstream producers still have a stock pile of materials that they buy at high prices; Second,
the weakening of rupiah exchange rate against U.S. dollars; Third, the high dependency of the
domestic industry against imports of steel products. Still can not be processed or accumulate raw
materials of steel, because at the end of the year 2008, some steel producers to import steel
dominated the steel form the raw material iron ore, billet, steel and rough (scrap). This is evident
from the import of steel during the period January-October 2008 jumped to 124%, compared to
the same period in 2007, from U.S. $ 4.52 billion to U.S. $ 10.15 billion. But with declining
prices of steel products such as steel grind so hot (hot coils rolled), the import of raw materials
and increasing the potential can not be processed or accumulate in the warehouse. The
downstream product prices at this time tended to decrease, while prices of raw materials tend to
be stagnant product. The weakening of the export market it was estimated became the main
obstacle for the manufacture industry during 2009. Estimated during 2010, the export market
began to be again restored, so as in 2009 will become the most difficult and defiant year for the
sector of the national manufacture industry.

The policy of the fiscal Stimulus in 2009

The decreasing level of national inflation second quarter fiscal year 2009, and the BI policy to
encourage a decrease in interest rates, is not immediately followed by economic growth that is
still hampered by lack of liquidity in the national banking sector, because it is still hampered
loans between banks. Currently, liquidity in the banking sector still accumulates the major banks,
especially state-owned bank. Still worsen concerns the economy and rising bad debts, resulted in
a national bank is very careful in lending, including to the other bank. Ultimately, small banks
have liquidity problems and are forced to increase interest rates in order to collect deposits of
public funds. Thus, the interest rate the loan can not go down, even though BI has been lower
interest rates gradually tribe. To expedite liquidity bank needed fiscal stimulus from the
government to help increase liquidity in the financial sector.

In December 2008, President Susilo Bambang Yudhoyono said the government stimulus package
to prepare the budget of the national budget in 2009 drawn from the remaining part of the budget
year 2008. Minister of Finance explains the determination of industry and commodity, one based
on the creation of field labor. Menkeu says the government has prepared a fiscal incentive budget
of Rp 12.5 trillion in APBN 2009. Government sectors to set as many as thirty one stimuli will
get Rp 12.5 trillion of the 17 industry sectors will have facilities VAT by the government (DTP),
while for customs DTP 14 is distributed to the industrial sector. Fourteenth to the sector incentive
BM DTP obtained is Rp 2.4 trillion. While the stimulus for additional Rp 38 trillion as an
additional stimulus is Rp 50 trillion to maintain economic stability and also as a stimulus.

President Susilo Bambang Yudhoyono said the government also plans to increase infrastructure
development that has been done by the Department of Public Works, Ministry of Transportation,
State of the Ministry of Public Housing, the Ministry of Energy and Mineral Resources, and
Department of Agriculture for this. However, how much impact the global economic crisis on the
real sector, especially to small and medium enterprises (SMEs), seems to need to be anticipated.
Fiscal stimulus from the government is expected to broaden the financial sector liquidity, so that
the business is able to move back. Implementation of this policy is very much determined the
ability of economic challenges facing Indonesia in 2009 and 2010.

The existence of small and medium enterprises was evidently able to survive the global
economic crisis to the present, especially in supporting the resilience of the national
manufacturing industry. The cause is still waiting for exporters of goods from purchase order
buyers / customers from overseas, the season in the country participate in a trading partner, and
not stabile business that export-oriented small and medium enterprises.

The Strategic Interests of Manufacturing Industry

In general, the industry sector experienced a decline in growth to 4.14 percent with the II quarter
2008 compared to the same period in 2007 which reached 5.17 percent. The decline is the growth
strategy and the interests of the industry generally, which also occurred in The Oil And Gas
Industry is not experiencing a growth of 4.49 percent and oil and gas industry is experiencing a
growth of 0.65 percent. The biggest growth in the industrial sector achieved by non-oil industrial
transport equipment, machinery and equipment as much as 15.82 percent, followed by Industrial
Fertilizers, Chemicals & Rubber Goods of 3.49 percent, Basic Metal Industry Iron & Steel of
2.98 per cent, Industrial Printed Paper and Goods of 0.42 percent, and industrial wood products
& other industrial forest of 0.32 percent. While the industry experienced negative growth in the
largest industrial goods other minus 4.26 percent.

Be if some manufacturing in Indonesia in 2000-an, are always busy thinking about the issue of
short-term is very difficult to overcome such a deficit of energy, procurement and processing of
raw materials; facilities roads, electricity, and food security , while the research is still a research
priority for the industry long-term. Concrete steps needed, so that the vision, mission, strategy,
and between manufacturing, research, and academic ideals of the mix, in addition to the central
government has also expressed will provide other incentives such as easy as cutting investment
taxes by 30% during 6 years for the manufacturing industry has been able to elaborate
"technology pioneer" in the appropriate mandate revision No PP. 1 / 2007. When compared with
the ASEAN countries other, the Indonesian government has not been able to in the provision of
incentives for industrial research activities, especially research on the manufacturing industry.

* The writer is lecturer of Public Relations & Communication Studies at Fac. Communication, President University, graduated
from Saint Petersburg State University, majoring in Regional Studies of European Countries (1999-2002) with Russian
Federation Gov’t Scholarships.