Table Of Content

ÔL. NO. 33, 3 rhird Quarter 2005 ISSN 0304-2170 The Indonesian Quarterly 3 Indonesia Textile and Garment Industry: Challenges and Prospects ] Singapore-Indonesia Cooperation in the Midsi Change and New Challenges 1 Diversity and Democracy under Perils 1 Indonesia's Current Economic Performance: Signs of Slowing Down ] Multilateral Security Framework in Northeast Asia: A View from Southeast Asia J Regional Cooperation and Security in Southeast Asia- The ASEAN Case ,J CoastIalI Scuhn•mp Cul1tûre m. TB>angl,ad,esh: CENTRE FaORndSTRATEGIC Economic, Social and Environmental Implications "^^STudib'^ ISSN 0304-2170 The Indonesian VOL. 33 NO. 3 THIRD QUARTER, 2005 Quarterly CONTENTS ABSTRACTS 206 - 207 CURRENT EVENTS Indonesia Textile and Garment Industry: Challenges and Pros—pects W« Chongbo - 208 - 215 Singapore-Indonesia Cooperation in the Midst ofChange and New Challenges /wsu/Wanandf 215-227 REVIEW OF POLITICAL DEVELOPMENT Diversity and Democracyxmder Perils Staff, DepartmentofPoliticsandSocial Change, CSIS 228-245 REVIEW OF ECONOMIC DEVELOPMENT Indonesia's Current Economic Performance: Signs ofSlowing Down Staff, DepartmentofEconomics, CSIS 246-258 ARTICLES Multilateral Security Framework in Northeast Asia: A View from Southeast Asia Rizal Sukrrm 259-268 Regional Cooperation and Security in Southeast Asia- The ASEAN Case C.P.F. Luhulima 269-295 Coastal Shrimp Culture in Bangladesh: Economic, Social and Environmental Implications MohammadA.T. Chowdhury,Md. ShahadatHossain, &Md. Muhibbulah 296-319 ABSTRACTS MULTILATERAL SECURITY FRAMEWORK IN NORTHEAST ASIA: A VIEW FROM SOUTHEAST ASIA — Bi/ Rizal Sukma - Northeast Asia does not have yet a multilateral security forum of its own. Indeed, most analysts and policy makers seem to agree that a multilateral security arrangement, which accommodates security interests of all, is needed in Northeast Asia. The question, however, is how to achieye it. This paper examines the prospects for a Northeast Asian multilateral security framework within the context of the experience of multilateralism in the wider Asia-Pacific. Unlike in the other sub-regions in Asia-Pacific, the path towards establishing a multilateral security framework in the Northeast Asian region is still blocked by many obstacles. The Six-Party Talk (SPT) which, however, despite all the problems facing it at the moment, has raised expectation and hope among regional countries that it could serve as the basis or an embryo for a formal multilateral security framework in Northeast Asia. The challenge is how to trans- form such expectation into reality. REGIONAL COOPERATION AND SECURITY IN SOUTHEAST ASIA: THE ASEAN CASE By C.P.F. Luhiilima ASEAN member countries have proved that they are capable of co-existing in peace and harmony since the association's establishment. Although regional disputes and differences have not been solved, ASEAN countries have learned in the process to diffuse or abate their conflicts and not to exploit it for their own interests at the cost of the Association. Hence, ASEAN's existence is a security guarantee for peaceful and harmonious bilateral relations. The ASEAN political instruments for security cooperation in the region remain valid and should continue to play the pivotal role, but now spelled out more specifically in the area of "confidence building measures, preventive diplomacy and the approaches to conflict re- solution." Abstracts 207 COASTAL SHRIMP CULTURE IN BANGLADESH: ECONOMIC, SOCIAL AND ENVIRONMENTAL IMPLICATIONS By Mohammad A.T. Chowdhury, Md. Shahadat Hossain, and Md. Muhibbullah Like other Asian countries, such as India, Indonesia and Thailand, Bangladesh has been gradually emerging as an important producer of cultured shrimp. The country produces about 4% of the annual global shrimp production along its coastal belt. The shrimp culture has had a significant impact on the economy of Bangladesh, but it has had high environmental costs too. The farmed shrimp industry (which represents a substantial component of the aquaculture) has often been criticized for its environmental damage. With the expansion of brackish-water shrimp culture the environmental impact has become a major issue. The main objective of this paper is, to show that there is a lot more to be gained by looking closely at the economic, social and environmental implications of the expansion of coastal shrimp culture, and its future in Bangladesh. The Bulletin of Indonesian fc:6rtom/c Studf/e's {B(ES) is a peer- reviewed journaf published by the Indonesia Project; The AustralianNational University. BUUHINaFINDONESIANICONOMICSTODIES The journal fills a significant vpid by providing a well respected outlet for quality research oh the Indonesian economy and related fields such:;as taw, the environment, demography, , education: and health.' In doing so, .4t has''playai' an important role since 1965 ia helpirig the vi/orld, and Indonesians themselves, to understand Indonesia. In addition to papers reporting economic analysis and research, each issue leads with a 'Survey of Recent DevelopmianteV which aims to be ascessible to non-economists, and helps to account for the journal's diverse readership within academia, government, business and the broader public. The BOUmSR14Epublished three times a year, in, April, August:and December and is available in Indonesia from FOR STRATEGIC AND INTERNATIONAl STUDIES, jalan Tanah Abang 111/23-27, Jakarta 10160 atRp65.000,00peryter, Rp30.000,00per issue. Py/merrtshotrfdb«senttoRopWt>VJppuntNo.0010.01.000211.30.1,BRICabangTanah AbaoR.JakarU 10160. CURRENT EVENTS Indonesia Textile and Garment Industry: Challenges and Prospects Wu Chongbo TEXTILE and Garment industry Over the last three years the total is one of the most significant number of textile industry producers sectors that give directly con- has remained stable. tribution to the economic growth in Indonesia. The Textile and Garment The geographical distribution of industry is not only absorbing many the Indonesian textile industry is workers but also giving the biggest highly concentrated on the island of foreign exchange compared with other Java, and in particular in West Java. sectors. Almost 90% of the textile industry is located in Java, and 54.8% is concen- PROFILE OF INDONESIA TEXTILE trated in West Java alone. For the AND GARMENT INDUSTRY garment industry, high concentration is found in West Java, Jakarta and According to the data from Depart- Batam Island, the latter being a free ment of Industry and Trade, the number trade zone. of companies dealing with textile and garment industry in Indonesia was About half of the country's textile about 88 in 1987, and over 2000 in 1992, production goes into the world market. and it reached to 2654 in 2003. Of The textile and garment industry as a those companies, 28 are fiber producers, whole counted as the single leading 204 yarn producers, 1043 fabric pro- foreign exchange earner in non-oil and ducers, 855 garment producers, and gas exports, reaching US$6.5 billion 524 other textile product producers.^ Commercial Service, US Embassy Jakarta, "Indonesia's Textile and Garment In- Report Date: 08/18/2004. Website: www. dustries Need New Machinery", U. S. buyusainfo.net. CurrentEvents: INDONESIA TEXTILEANDGARMENTINDUSTRY (Chongbo) 209 Table 1 UTILIZATION OF TEXTILE MACHINERY IN 2003 (IN MILLION TONS) Category 2001 2002 2003 Fiber Capacity 1.05 1.05 1.05 Production 0.96 0.78 0.77 Utilization (%) 91.43 74.29 73.33 Yam Capacity 2.32 2.34 2.33 Production 2.03 1.65 1.64 Utilization (%) 87.5 70.51 70.39 Fabric Capacity 1.99 2.01 1.72 Production 1.56 1.28 1.27 Utilization (%) 78.39 63.68 73.84 Garment Capacity 0.58 0.59 0.59 Production 0.56 0.46 0.46 Utilization (%) 96.55 77.97 77.97 Source: MinistryofIndustryand Trade, Indonesia in 1997, a tremendous increase from According to data from the Minis- US$559 million in-1985. Since early try of Trade and Industry, by 2003 as 1990s, about 16% of the total value of many as 2,654 textile companies across Indonesian manufacturing export came the country employed more than 1.18 from apparel and garment sector. In million people. In 2004, Indonesia's 2000, Indonesia achieved a record of textile industry employs about 1.5 US$8.2 billion (Rp 74.9 trillion) in ex- million people, and the sector employs ports and was ranked the 10th among about 3.5 million people directly and the largest producing countries. The indirectly.'^ figure was US$7.6 billion in 2001 and US$7 billion in 2002. In 2003, Indone- The years 2002 and 2003 were very sia has already earned US$7.03 billion difficult for the textile businessmen. from exporting textile and textile pro- In those years many clothing and ducts, but Indonesia's rank position garment factories got bankrupt. Ban- went down to the 17th, and accounted dung—the provincial capital of West for only 2.15% of the US$500 bilHon Java and once the main textile and global garment trade. The government footwear production belt for exports — estimates that textile and apparel ex- and the local market has been closed ports would increase to US$7.5 billion more than 100 factories over the past in 2004.2 two years. This sector's capacity utilization is now only about 70%. 2http://www.fibre2fashion.com/ http://www.atimes.com/atimes/ news/NewsDetails.asp?NewsJd=8383 Southeast.Asia/FH03AeO4.html 210 THEINDONESIANQUARTERLY, Vol.33, No. 3. 2005: '>OR.0i^ PROBLEMS IN INDONESIA TEX- TILE AND GARMENT INDUSTRY vesting in a big way in new machines and technologies, to pos- On 1 January 2005, a quota system ition strategically, by scaling up, designed to protect the industrial in- so as to become the new dominant powers in the international mar- terests of the United States and the When European Union from a flood of cheap ket. the quotas end, those imports had been aboHshed. Although nations, especially China and India meant to be in the spirit of a new era wUiSll abnednefEiturmoopsetanfromamrktehtes.masTshievye of free trade and the drive for liberal- mizoartieon,thtahne 1m0ovmiellwiiolnl wpoutrkethres jaocbrsososf _ cthoeulEdUbaendthUeSlamragreksettssuipnplthieerpsostt-o quota era. According to a recent the developing world at risk, including WTO report, China's share of gar- thousands in Indonesia's fading tex- ment export to the US will rise to tile industry. Textile producers in .In- 50% after the quota system ends donesia have been able to continue this year, up from 16% in 2002. In exporting, despite rising competition, Europe, China's share will reach because of the quota system. When 29% in 2005, up from 20% three this ends, those who remain inefficient years earlier. The second-biggest will be sidelined. winner will be India, whose share The country's textile industry was of US market will jump from 4% in plagued by a couple of problems, in- 2002 to 15% in 2005, India's share cluding labor disputes, rising labor of European market will rise from and energy costs and ageing machin- 5% to 9%. But Indonesia will lose ery. In addition, many textile com- share of US market, from 4% in panies had either gone bankrupt or 2002 to 2% in 2005, the WTO pre- dicts.^ So the removal of the quota produced below capacity, over the years. Following are the important barrier is expected to make it in- creasingly difficult for the Indone- factors, which have contributed to the sian textile industry. difficulties faced by Indonesia Gar- ments Industry: • The industry is now ageing. Ac- • The great problem of the Indone- cording to PT Sucofindo, 57% of the machines of textile and garment sian textile industry is the fierce factories in Indonesia are 15 years competition coming from India, old, 18% are 10-15 years old, 18% China, Pakistan, Bangladesh, Tur- key, Mexico, and even Vietnam and Thailand. In the past few years, '^Far Eastern Economic Review, 9 Sep- - these countries have all been in- tember2004, 32. ^Jawa Pos Group: International Daily News, 19 Aug 2004. — CurrentEvents: INDONESIA TEXTILEANDGARMENTINDUSTRY (Chongbo) 211 are 5-10 years old and 7% aged importers have to pay a 10% ini- below 5 years.^ The technology port duty, all those have forced is obsolete, short of productivity, producers to increase price to re- efficiency, and quality, not least main in business. Domestic demand material and energy, environment consequently decreased in response conservation. Out of more than to these higher prices. On the other 4,100 textile companies, at least hand, this industry imports about 774 companies need to replace their 90% of its cotton needs from Aus- old machinery. In one word, Indo- tralia and USA. Due to the freight nesia textile industry is now in a and transaction costs, the Indonesia dilemma situation, whether to al- Garments manufacturer buys cot- low it withers, or try to revitalize ton-related inputs and material at it by restructuring and reinvesting. higher prices as compared to their According to Argo Group, Apac, competitors. Some businessmen say etc., there are indeed some re-mo- if Indonesia had its own cotton re- dernization plans in the pipeline, sources, it would have been the but all plans are_waiting for govern- most competitive economy for garment's financing. It is predicted ments industry in the world. that between US$5.0 billion to US$6.0 billion is required to update • Poor investment climate caused the the existing machine and equipment.^ foreign investors to withdraw their capital from Indonesia. Investment, • Costs of production are escalating especially offshore, has been lagging remarkably. Indonesia does not in Indonesia as compared with grow cotton, so the serious com- neighboring countries, mostly due petitive disadvantage of Indonesia to the adverse investment climate garments industry is their almost total dependence on imported here. Before the crisis, investment cotton and cotton related inputs. was one of the country's main eco- The textile industry still imports nomic growth drivers. At present, more than 80% of its raw material, however, it accounts for less than cotton, used to produce textile pro- 15 percent of growth in the coun- — ducts. The Rupiah depreciation has try's gross domestic product an resulted in a dramatic rise in the indicator of economic growth cost of imported cotton, and the with domestic consumption con- tributing more than 75 percent. ^Jawa Pos Group: International Daily News, 19 Aug 2004. Investors have been complaining Îndonesia Textile magazine, July 2004 about various conditions that are de- 29. trimental to investment, including a 212 THEINDONESIANQUARTERLY, Vol.33, No.3. 2005: ?n«-7T^ lack of legal certainty, widespread market, the banks are willing to corruption, inefficient bureaucracy and resume their credits to this sector.^ labor disputes. For foreign investors, who invest mostly in the manufactur- GOVERNMENT'S POLICY ON ing sector, tax-related issues have also TEXTILE INDUSTRY become a problem. In the past two years, many foreign companies coming The textile industry is expected to from Japan and South Korean have remain as a major contributor to Indo- shifted to China and Vietnam, where nesia's economy. One of the leading they can enjoy the better investment reasons is that Indonesia still has a environment, lower wages and higher comparative advantage for labor-in- tensive industries and the sizable do- productivity. For this reason, many mestic market, given the nation's 220 economists advice the Indonesian gov- million population. The Indonesian ernment should take a good step to Government is taking measures as improve the business and investment fellows: environment, and the government will host a series of discussion on matters • Limiting the importation to protect concerning the textile and garment in- local textile producers. The Ministry dustry, with -a search for ways to im- of Industry and Trade has issued a prove the investment climate in this decree to limit textile imports in an effort to help the local industry, country likely to be high on the agenda. which has been severely hurt by • Banks refusing to cooperate makes massive quantities of cheap im- the situation worse. For the past ports. Decree No. 732/2002, which couple of years, local banks have was signed by minister Rini MS generally avoided lending to the Soewandi in 2002, stipulates that textile industry due to high risks. the importation of textile products can only be done by local textile Textile industrialists complained producers. about bank reluctance to extend new credits to textile and garment • The government has asked the industries as many banks believed textile industry to lessen the im- the country's textile industry is no portation of textile raw materials, longer competitive. The bankers particularly cotton. Indonesia gov- argued that textile and garment ernment warned that if Indonesia industries at home overdependence over depend on cotton, that cannot on quota system and American be produced in Indonesia, for the market, if textile and garment industrialists can make progress in ^China, International Business Daily, exploiting non-traditional export 11 May 2004.