Mustaqim Adamrah, Jakarta – The government forecasts that manufacturing sector output will only grow by 3.6 percent to 4.6 percent next year, lower than this year's revised growth target of 4.8 percent, says Industry Minister Fahmi Idris.

Speaking before members of the House of Representatives' Commission VI overseeing industry, trade, and state companies, on Monday, Fahmi said the global financial meltdown would negatively affect exports, loan disbursements and peoples' purchasing power.

"The national economy is trailing the global financial crisis, which also has affected the realization of investment (in the country)," he said. "This crisis will have a direct impact on the manufacturing sector," he added.

The crisis has apparently taken its toll earlier than expected, with the ministry having revised this year's output target downward from the initial 5 percent. Electronics, automotive, and machinery producers are the most likely to be hit hard by the slowdown.

Also, the crisis has prompted companies to temporarily discharge workers to cope with the global economic turndown. The Manpower and Transmigration Ministry has estimated that 40,486 industrial workers will be laid off next year, half of which would be permanently dismissed.

The Indonesian Rattan Furniture and Craft Producers Association (AMKRI) has estimated the industry may have to lay off some 35,000 workers by the end of this year, while 700 textile firms have temporarily dismissed 14,000 workers.

To help shield the manufacturing sector from the meltdown, the government has earmarked Rp 12.5 trillion (US$1.1 billion) in its 2009 state budget to support the sector. Around Rp 10 trillion will be spent on subsidizing value-added tax cuts and the remaining Rp 2.5 trillion will cover duty reductions.

In addition, Fahmi said the government would focus on how to improve the country's competitiveness and investment climate.

Fahmi said the government had issued, among other measures, a trade financing policy that would guarantee exporters from possible financing failures, along with income tax reductions for certain business sectors.

The Government will also eliminate export duties on crude palm oil, he added. "The government is also relaxing export market regulations to help boost exports," he said.

He said the government would by the end of this year issue a regulation requiring state-owned enterprises and central government and regional administrative units to spend their budgets on local products to support domestic industries.