Government expects up to Rp 2t for textile sector

The Jakarta Post , Jakarta | Fri, 05/18/2007 7:58 AM | Business

The Jakarta Post, Jakarta

Following discussions with the country's banks, the government hopes that they will help revitalize the textile industry by providing up to Rp 2 trillion (US$222 million) in loans this year to support the government's own Rp 255 billion reequipment program for the sector.

The government plans to increase its support fund to Rp 1.27 trillion over the next five years, with the banks expected to follow suit in committing up to Rp 8.5 trillion in lending.

The country's textile and garment industry may need some Rp 50 trillion to finance complete reequipping, with 80 percent of the machinery currently in use being over 20 years of age, said Ansuari Bukhari, the Industry Ministry's director general for metals, machinery and textiles.

Despite perceptions that Indonesia's textile sector is something of a sunset industry, Anshari said that the prospect of increased lending by the banks showed that the sector still had potential.

""There are many textile companies that have shown they are able to maintain good credit records,"" Anshari said during a workshop held jointly with the central bank Wednesday to discuss financing problems in the textile sector.

The textile and garment industry contributed $9.4 billion of Indonesia's total exports of $100.6 billion last year, Anshari added, and provided employment for some 1.8 million workers.

The government expects exports from the sector to grow to $10 billion this year, having rolled out last month a Rp 255 billion financial support program to allow the industry to reequip.

A total of Rp 175 billion will be used to subsidize the interest of loans taken out by large-scale textile companies to purchase new machinery, while the remaining Rp 80 billion will be disbursed as soft loans to smaller textile firms.

Some 150 companies are expected to receive between Rp 100 million and Rp 5 billion under the program, Anshari said.

In terms of bank lending to the textile industry, total loans as of the end of March amounted to Rp 27.5 trillion, compared to the banking sector's total outstanding loans of Rp 843 trillion, Bank Indonesia Deputy Governor Hartadi A. Sarwono said.

However, Hartadi said that lending to the textile industry was not without risk, with its gross non-performing loan (NPL) ratio amounting to 23 percent, much higher than the banking sector's average of 6 percent.

This had contributed to the perception of the textile industry as being a riskier lending market, he said, which could only be overcome if all concerned -- the government, the industry and BI -- were to work together to design tailor-made financing schemes more suited to the industry.

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