Introduction

The important point about the production of vesture in Indonesia is clearly indicated by the strong growing of vesture exports. From 1985 until 2000, the value of vesture exports grew significantly from US $ 0.3 billion to US $ 4.5 billion while export volumes increased from 44 thousand dozenss to 364 thousand dozenss. However, in 1997-1998, there was a important diminution in the public presentation of exports since the economic crisis hit Asia and affected Indonesia at that clip. This crisis besides disclosed failings in the Indonesian economic system, such as the deregulating of the banking sector and the immense accretion of more than US $ 60 billion ( Backman, 1999 ) in private-sector debt. This resulted in the utmost devaluation of the rupiah which had serious effects for Indonesian houses who had been borrowing to a great extent in dollars.

The Asiatic crisis had a scope of different effects on the vesture industry in Indonesia. There were vesture houses that gained from the really low labor costs with regard to the dollar-based net incomes of international trade. On the other manus, many houses were negatively affected by the national economic status. In theory, a inexpensive and skilled labors force created a competitory advantage in the export-oriented vesture industry in that dollar-based international vesture concerns could pay local labor in the highly depreciated rupiah. This is possible cardinal point for companies with low debts because they can hold really high net incomes. However, companies with high debt degrees faced fiscal problems as the really high involvement rates made it impossible to raise the liquid capital needed to buy the indispensable stuff inputs for vesture industry. Therefore, during 1997-1998 many companies faced bankruptcy and this resulted in the diminution of vesture exports. In these old ages, international companies were besides nervous about making concern with Indonesian houses because of the political uncertainnesss and the societal turbulency. The societal turbulency in Indonesia has been pressing and dramatic. Rising in monetary value, rioting in which the chief marks were the cultural Chinese minority. Following rioting once more in some chief metropoliss and President Soeharto eventually bowed to demands for his surrender after 32 old ages as President.

Despite all of these jobs, in the undermentioned old ages, exports increased significantly, and Indonesia became the 9th largest exporter of vesture in the universe ( WTO, 2002 ) , accounting for 2.3 per cent of entire universe exports in 2001.

Aim

As fabric and vesture industry is so important in the Indonesian export economic system the economic crisis will hold perfectly unwanted effects. The aim of this survey is to look into the crisis and look into the impact of economic crisis on the fabric and vesture industry in Indonesia.

Research Method

Since this will be a literature reappraisal, merely literature beginnings will be used. These databases included: UvA-linker and JSTOR. When seeking the literature, the undermentioned keywords will be used: Asiatic crisis, economic crisis, fabric and vesture industry, garment industry, industrial fight, and manufactured export.

Research Questions

The undermentioned inquiries will be tested in analysis to pull up decisions on the impacts of the economic crisis on the fabric and vesture industry in Indonesia.

What happened in the economic crisis 1997?

What were the tendencies of the fabric and vesture industry before the Asiatic crisis?

To what extent does the economic crisis affects the fabric and vesture industry in Indonesia in comparing with other state ( China ) ?

Disposition

I organized the thesis into four chief chapters. I explained each chapter and its relevancy below:

Chapter one is the debut of the thesis whereby the job of the thesis and its aims are stated.

Chapter two is where the reappraisal of relevant literatures is explored.

In Chapter three we conclude overall literature reappraisal to uncover the attainment of the research inquiries.

Asiatic Crisis

The Asiatic crisis began in 1997 and finished at the terminal of 1998. First it hit Thailand and so extended to Indonesia, Malaysia, South Korea and the Philippines. These states are referred to as the crisis states. The crisis started in Thailand during 1995-1996, when the Thai tical experienced bad onslaughts. Krugman ( 1979 ) explained that such onslaughts tend non to be launched when the foreign militias have really fallen to zero, but when the fixed exchange rate peers the shadow exchange rate. When markets or speculators consider the fixed exchange rate to be no longer appropriate, they launch a bad onslaught, and this will go on before foreign militias are really diminished. As a consequence, the money stock rises because monetisation can no longer be combated by the backdown of domestic money by purchasing domestic currency utilizing foreign militias. At that clip, the Indonesian rupiah ‘s fluctuation set with regard to the US dollar was widened from around 5 per cent to 8 per cent, whereas in Korea the day-to-day fluctuation set was widened to 10 per cent.

Thailand ‘s state of affairs earnestly deteriorated in the first half of 1997. At that clip, Thailand had a foreign debt load that bankrupt the state, even before its currency prostration. On July 2nd the Thai governments were forced to allow the tical float vis-a-vis the US dollar. This became the starting point for the Asiatic crisis, and within hebdomads all currencies in the part experienced bad onslaughts. The chief ground it spread to other states is that because of trade links. When Thailand devalues its currency in response to an onslaught, there is a negative impact on the current history balances of its trading spouses. The most badly affected states were Indonesia, South Korea and Thailand. Hong Kong, Laos, Malaysia and the Philippines were besides hurt. Brunei, India, Singapore, Taiwan, Vietnam and China were less affected. The tical fell by 34 per cent, the rupiah lost 27 per cent, the Malayan ringgit fell by 17 per cent and the Philippine peso fell by 14 per cent.

Exchange rate vis-a-vis the US dollar, end-of-year informations, 1993-1999.

1993

1994

1995

1996

1997

1998

1999

Dutch east indies

2110

2200

2308

2383

4650

8025

7085

Malaya

2.702

2.560

2.542

2.529

3.892

3.800

3.800

Philippines

27.699

24.418

26.214

26.288

39.975

39.059

40.313

South Korea

808.1

788.7

774.7

844.2

1695.0

1204.0

1138.0

Siam

25.540

25.090

25.190

25.610

47.247

36.691

37.470

China

5.800

8.446

8.317

8.298

8.280

8.279

8.280

Hong Kong

7.726

7.738

7.732

7.736

7.746

7.746

7.771

Singapore

1.608

1.461

1.414

1.400

1.676

1.661

1.666

Beginning: International Financial Statistics of the International Monetary Fund.

The intense currency crisis brought about a strong economic recession in 1998. Following there is transmutation in their exchange rate system as a consequence of the crisis. Though, none of the crisis states maintained an exchange rate government as fixed prior to the crisis, except for Thailand. They are all run to drifting exchange rate system in order to counter the function of exchange rate nogs in finding exposure to crisis.

Asia started to retrieve in October to December 1998. The first to retrieve were the fiscal indexs in that currencies began to appreciate, stock monetary values returned to normal and involvement rates decreased. The GDP growing rates started to better in 1999.

In mid-1997, the International Monetary Fund ( IMF ) countered the Asiatic crisis by planing and imparting monolithic loans to the crisis hit states. On 20 August, it was announced loan to Thailand of 17.2 billion US dollars. The IMF besides agreed to give stand-by recognition of 21 billion US dollars to South Korea at the terminal of 1997.

Fabric and Clothing Industry before the Asiatic Crisis

The Impact of Economic Crisis on Textile and Clothing Industry

Export

The Asiatic economic crisis in 1997-1998 had an impact on the Indonesian economic system. The crisis hit in mid-1997, but the chief impact was felt in 1998 as the economic system contracted by 13.1 per cent. The fabrication sector, which is the major beginning of export grosss, contracted by 11.1 per cent, while the fabric, leather and footwear industry contracted by 14.9 per cent ( Thee, 2006 ) . However, based on BPS-Statistics Indonesia, garment industry categorized as subsister since comparatively no consequence with a extremum in Q3 1998, whereas finished and printed fabrics classified as gainers because no alteration in export even it increase prior to the crisis.

In 1999, the economic system somewhat improved with a positive but really little growing rate of 0.8 per centum, whereas the fabrication sector grew 3.9 per cent, and the fabrics, leather merchandises and footwear industry grew 8.5 per cent. In 2000-2004, growing rates increased, the economic system turning at an mean one-year rate of 4.6 per cent. The fabrication sector grew at an mean one-year rate of 5.2 per cent, while the fabric, leather merchandises and footwear industry averaged 4.9 per cent ( BPS ) . Furthermore, in 2005, exports for fabric narration reach 1.622 billion US dollars and 1.129 billion US dollars for outer garments knit non-elastic.

Industrial Competitiveness

The fabric, garments and footwear industries which are labor-intensive and export-oriented, faced troubles. After the Asiatic crisis 1997, export orientated houses benefited from the depreciation of the rupiah. But, after 2000, export growing decreased dramatically because these houses could non vie with China, Vietnam and other low-priced manufacturers. While international competition in the industry has intensified, Indonesia ‘s garment industry has become less competitory ( Aswicahyono and Hill, 2004: 289-90 ) .

The competitory advantages ( or disadvantage ) are factors that lend a house or an industry with some competitory advantages ( disadvantages ) relative to the competition abroad. These advantages may ensue from the history of the house ( opportunity ) , from merchandise or procedure development, from the house ‘s pick of cost and selling scheme, from the synergism consequence caused be the houses in the industry, etc. ( Nielsen, Madsen and Pedersen, 1994: 26 ) .

The size and dynamism of the Chinese economic system, its cost advantages and its big pool of labour resources have changed the regulations of international competition ( James, Ray and Minor, 2003: 93 ) . With low accomplishment and labour-intensive exports to Indonesia, China became progressively dominant as a provider of fabrics and garments. Recently, there has been a immense convergence between China ‘s and Southeast Asiatic states ‘ labor-intensive exports to the US market which is the major market for their manufactured exports. This has led to Indonesia ‘s garment industry being expected to lose market portion in footings of its export markets.

Between July and December 1997, Indonesian manufacturers faced a major encouragement to their international fight with the immense depreciation of the rupiah. Toida and Uemure ( 2002 ) show that the rupiah fell by about 75 per centum against the dollar between the oncoming of the Asiatic crisis and year-end 1997, while other Asiatic currencies fell by, at most, 50 per centum. In contrast, before the crisis began, the Chinese currency had been steadfastly pegged to the dollar at a rate of 8.28 Yuan. However, between 1997 and 2001, the CPI ( Consumer Price Index ) and GDP ( Gross Domestic Product ) deflator indices rose by over 120 per centum and 130 per centum severally in Indonesia, but declined by around 1-2 per centum in China ( ICSEAD 2002 ) . Therefore the derived function of rising prices between China and Indonesia has been eroded ( James, Ray and Minor, 2003 ) .

Analysis indicates that Indonesia ‘s garment industry was losing its fight long before the Asiatic economic crisis. Although the garment industry ‘s unit labor costs ( pay costs adjusted for labour productiveness ) appeared to stay competitory, the industry was non able to interpret Indonesia ‘s labor cost advantage into a turning incursion of the export markets ( Aswicahyono and Hill, 2004: 290 ; Aswicahyono, Atje and Thee, 2005 ) . It is because of two major jobs. The first is labour jobs which includes minimal rewards and dearly-won fire processs. The 2nd is that export-import processs become increasingly more dearly-won.

With the phasing out of the MFA ( Multi-Fibre Agreement ) as of January 2005, garment trading has fallen under WTO regulations. This means that the garment industry in Indonesia will confront tough competition in all export markets. Indonesia ‘s garment industry has, in recent old ages, besides lost no less than 40 per centum of the market portion in Japan, the universe ‘s largest non-quota market ( Aswicahyono and Hill, 2004: 292 ) . Besides, with trade liberalisation in ASEAN markets, the garment industry in Indonesia is besides confronting strong competition from lower pay states like Vietnam and Cambodia.

Another ground that made Indonesia less competitory after the crisis was the quality of production. Fabric manufacturers were unable to come in the higher-end market efficaciously. Almost none of the dress and fabric manufacturers have Research and Development ( R & A ; D ) sections, and the other information that is required for production. Reports estimation that the mean age of machinery now exceeds 20 old ages for whirling machines, 15 old ages for weaving machines, 10 old ages for dyeing machines and seven old ages for machinery used in apparel industry. ( ICN, 2002: 40 )

Harmonizing to PT. SUCOFINDO, proficient review house in Indonesia, 57 per cent of the machines of fabric and garment mills are 15 old ages old, 18 per cent are 10-15 old ages old, 18 per cent are 5-10 old ages old and 7 per cent aged below 5 old ages.[ 1 ]The engineering is evidently disused, short of productiveness, efficiency, and quality. Out of more than 4,100 fabric companies, at least 774 companies need to replace their old machinery. But many companies could non purchase new machinery because they have monolithic debt and hapless hard currency flows. To reason, Indonesia is now is in a quandary, whether or non reconstituting and reinvesting which is predict in between US $ 5.0 billion to US $ 6.0 billion that is required to update the bing equipment and machine.[ 2 ]

Employment

There have been major alterations in Indonesia ‘s labour market policies post Asiatic crisis, non merely on fabric and vesture industry but on all employment in Indonesia as a general. During the Seoharto epoch, labour market outcomes more or less accorded with ‘East Asiatic norms ‘ . Rapid economic growing generated lifting existent rewards, with a slowdown. Trade brotherhoods existed, but were to a great extent suppressed. Minimal rewards were prescribed but they were by and large below market degrees in the formal sector, and were non enforced consistently. ( Aswicahyono, Bird, and Hill, 2009: 364 )

After the autumn of Soeharto, tonss of new labour brotherhoods were created, taking to much more vocal and aggressive demands to increase rewards and better working conditions. The authorities has besides introduced dearly-won dismissal processs and societal security ordinances that have increased the cost of using labor ( Aswicahyono and Hill, 2004: 291 ) .

At that clip, authorities increased the lower limit pay ( UMP ) . In 2000, in Jakarta and Bandung, the lower limit pay rose by 49 per centum and 17 per centum severally and by 30 per centum and 34 per centum severally in 2001. The Ministry of Manpower and Transmigration, Jacob Nuwa Wea, announced more moderate UMP additions for 2003 of 6.8 per centum for Jakarta and 14.0 per centum for West Java ( James, Ray and Minor, 2003: 99 ) . Not merely has the UMP increased, but trade brotherhoods are besides more active now than in the yesteryear. Harmonizing to the Indonesian Textile Association ( API ) , increased combativeness by brotherhoods has led to an addition in industrial action. The creative activity of new labour brotherhoods and the new Labour Law have led to many industrial differences and lost on the job yearss. In add-on, during May 2006, many workers left their occupations, doing losingss of one million millions of rupiah ( Thee, 2006: 9 ) . The mean employment growing rates in 1996/97 to 2000/01 for fabrication sector is 1.9 % , worsening to -1.1 % in 2000-01 to 2004/05 ( Manning and Roesad, 2006: 165 ) .

Decision