Govt rolls out soft-loan scheme to help ailing textile industry

Andi Haswidi, The Jakarta Post, Jakarta

After a long wait, the government appears to be finally ready to cough up Rp 80 billion (about US$8.8 million) in soft loans to small and medium-sized textile firms as part of a reequipping program.

"The soft loans are intended to help about 50 small and medium-sized textile companies," said Anshari Bukhari, the Industry Ministry's director general for metal, machinery, textile and miscellaneous industries, as quoted by Detik.com.

Loans extended under the scheme will carry an interest rate of 8 percent per year, and will range in size from Rp 100 million up to Rp 5 billion.

The Rp 80 billion available for lending to SMEs in the sector forms part of an overall Rp 255 billion in budgetary funds that have been allocated to encourage firms in the country's ailing textile industry to reequip.

Anshari said the procedures for applying for a loan would be announced Monday in the press.

"So far, we have only received an application for a loan from one firm. We expect to receive more after we fully roll out the program on Monday," he said.

The government kicked off the first phase of the textile-industry interest subsidy scheme on April 20, under which a total of Rp 175 billion is being allocated to cover interest payments of up to 11 percent on loans for the purchase of machinery or for other forms of investment made by large-scale textile companies up until Dec. 31.

Of the overall Rp 175 billion available under the interest subsidy scheme, 30 percent is earmarked for the garment industry, 50 percent for the textile industry, and the rest for the spinning industry. The government is hoping that the sector can create an additional 10,530 new jobs this year, and increase total textile exports to $156 million.

The domestic textile industry is losing out in terms of production capacity and quality compared to its foreign competitors as most of the firms operating in the industry use machinery that is more than 20 years old.

Interest subsidies are essential for the industry as the banking sector has been reluctant to reduce lending rates despite the country's improved macroeconomic fundamentals, and the fact that Bank Indonesia reduced its key rate 10 times since last May to 9 percent at present.

Apart from providing subsidies, the government will also reduce taxes on the imported cotton used in textile production.