Indonesia cushions impact of sluggish demand

Indonesia's economic growth slowed down in the fourth quarter of 2008 to 5.2% from 6.4% year-on-year, the slowest pace in more than two years' last quarter as the global recession lowered demand and reduced prices of the country's major products. Its exports of palm oil, rubber, coal and electronics suffered. In January this year, exports plunged the most in the past 22 years by 35.5% to $7.15 billion, according to the Central Statistics Bureau, as demand for rubber, garments and electronics fell. The biggest challenge this year is for Southeast Asia's largest economy to meet the revised growth target of 4% to 4.5%. There is much hope, as most analysts believe that Indonesia is still one of Asia's brighter spots, with two-thirds of its economy driven by domestic consumption. The government also announced a $6-billion stimulus package, mostly in the form of tax cuts, to support the economy. The general and presidential elections this year are also seen as factors that could spur the economy, but the World Bank says that a boom may not necessarily follow election-relation spending. Indonesia is eyeing various financing sources this year. Contingent loan facilities initiated by the World Bank, Asian Development Bank as well as other countries such as Japan are expected to bring the necessary funding. Indonesia and Japan already agreed to increase the size of an existing bilateral swap agreement to $12 billion from $6 billion to contribute to the stability of the economy. Strengthening the plastics industry Indonesia's plastics industry produces a wide range of plastic goods from food containers to components for car interiors. It employs about 350,000 workers in the factories, while more than 1 million people are indirectly involved in the industry through related sectors. The industry has 6,000 companies, 80% of them based in Java. Around one-third of them are medium-scale operations. Several polymer manufacturers such as Chandra Asri, Tri Polyta and Titan chemicals supply feedstock. The industry consumes an average of 200,000 tons of plastic resin monthly. The gloomy outlook for the plastics industry is seen to pervade this year with weak overseas demand for Indonesia's plastics. Competitors such as China, Vietnam and Thailand are also being more aggressive in their move to capture bigger overseas markets offering prices that are lower by as much as 15%, according to Yoesoef Santo, a director of the Indonesian Olefin & Plastic Industry Association (INAPLAS). He added that exports of plastics, particularly those produced by downstream manufacturers, have been declining since October 2008 as Indonesian exporters cannot match the prices of their competitors from these countries. Indonesia's exports of plastics average $400 to $500 million, growing at 6% annually in the past few years. For this year, most manufacturers believe that growth may be elusive as they brace for lower revenues. Exporters of plastics products complain that they do not enjoy subsidies unlike in other countries, which would have created a big difference for the industry. Also, the plastics industry is adversely affected by inadequate infrastructure and higher fees charged at ports, thus raising the cost of doing business. Downstream manufacturers are also faced with high costs of raw materials such as PE and PP as prices of raw materials have risen by as much as 15% since the last quarter of 2008. To cushion the negative impact of sluggish demand, the Indonesian plastics industry has taken initial steps. For one, major plastics manufacturers announced they would either cut or cease production in the wake of oversupply. Four manufacturers - PT Chandra Asri, PT Titan Petrochemical, PT Tri Polyta, and PT Politama - earlier announced they had as much as 90,000 tons of PE and PP stocked in their warehouses and would need to cut their production until the stocks are sold.Nike Air Max