Dian Ariffahmi

Improved Access to Financing Crucial to Indonesian Manufacturing: Economist

The manufacturing sector will not grow by the government’s target of 6 percent annually unless more credit is disbursed to the sector, a senior economist said on Tuesday.

Excluding oil and gas, the manufacturing sector accounted for 16.4 percent of the country’s gross domestic product in 2008. It grew 3.7 percent last year, slowing from 6.3 percent in 2007 after the global economic crisis hit demand for products.

Observers have said it is crucial for the government to revive growth in the sector, which employs millions of people, to reach its overall growth targets.

Economist Faisal Basri, of Indonesia Research and Strategic Analysis, said on Tuesday that manufacturers needed to be educated about how to properly apply for loans. Otherwise, he said, the ministry’s plan to help manufacturers revitalize aging factories would be ineffective.

Faisal was speaking at a seminar on the revitalization of the steel and metal sector in Jakarta.

“Many [manufacturers] do not submit a proper medium- to long-term business plan in their credit proposals,” and their loan applications are rejected, Faisal said.

He added that procedures for such loan applications were more complex for manufacturers compared to businesses in other sectors and needed to be changed.

Lending by commercial banks to the manufacturing sector has fallen steadily in the past few years. In 2004, commercial loans to manufacturers comprised 26 percent of total lending, according to data from Bank Indonesia, falling to 21 percent in 2008 and 17 percent during the first nine months of this year.

“This was down sharply from 1995 in the golden years of the sector, when local bank allocations to manufacturing was 40 percent of total loans,” Faisal said.

Speaking after the seminar, Industry Minister MS Hidayat said critics of the ministry’s lending program should wait for an industry blueprint, expected to be completed in the first 100 days of the new government’s tenure.

The blueprint would prioritize manufacturers that needed help and outline necessary reforms for the sector, he said.

Interviewed separately on Tuesday, the director for international affairs at state-owned PT Bank Negara Indonesia, Bien Subiantoro, admitted that manufacturers faced more hurdles in securing soft loans from banks than businesses in other sectors.

“To disburse credit to the manufacturing sector, we start with a long feasibility study to identify all aspects of the particular industry and the prospects for sales, along with export credit facilities used,” Bien said.

He noted, however, that BNI still distributed about 25 percent of its loans to manufacturers.

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