Soraya Permatasari, Jakarta – Indonesia's textile industry, once a significant national breadwinner, has withered into a shadow of its former self under the strains of the country's deep economic crisis.

Huge exposures to foreign borrowings and expensive raw materials have undermined what was a major export earner.

Indonesia earned $6.2 billion from the export of textile products in 1997, the year its economic crisis started. No figures are yet available for 1998, but industry officials expect a drop of 50 percent.

Analysts forecast the performance of Indonesian textile companies will remain weak, hampered by limited growth in demand, expensive production costs and further price declines.

Indonesian Spinners Association chairman Aminuddin said the textile industry was languishing at 62 percent capacity.

"Textiles are a capital intensive industry, therefore it is common that they finance their operations through loans," said Arief Koeswanto of HSBC Securities.

There was also a problem in getting raw materials, Koeswanto said. "Overseas banks don't trust Indonesian banks any more because of the crisis. How can they make payments for imports?"

Like companies in other industrial sectors, textile companies have been hit by the depreciation of the rupiah. In principle, this should help exporters, making their products cheaper abroad.

But many textile companies are beset by foreign debts that have swollen in rupiah terms. Raw materials are largely imported, making production costs jump in rupiah terms.

The rupiah has plummeted from 2,700 to the dollar in mid-97 to below 9,000 to the dollar. At one stage it fell to 17,000. Most analysts have dropped textile companies from their coverage due to the firms' small capitalisation and generally weak performance.

Some textile analysts only follow those at the upstream end of the industry – who produce polyester and polyester yarns and other types of raw materials for clothes – because of their stronger capital base and their big export portion. The downstream end of the industry – firms actually making cloth and clothes – has been worst affected.

"Many companies in the downstream industry are domestic players. It is harder for them to survive, because the raw materials are mostly imported," one said.

Polyester producer Indorama (INDR.JK), whose market capitalisation is much higher than most other firms, was expected to book higher revenues in 1998 and slightly lower in 1999.

Declining selling prices and limited growth in sales volume are making it tough for the company this year, analysts said.

"You may see much higher revenues in rupiah terms in 1998 when compared with 1997 numbers, but the sharp increase is mainly due to the sharp depreciation of the rupiah. In terms of volume there was no real increase," said an analyst with a foreign brokerage.

One textile analyst expected Indorama to book a loss in 1998 because of higher swap costs. Analysts expected polyester product prices to continue falling by five to 10 percent in 1999.

Koeswanto of HSBC Securities added that profit margins for textile companies were not impressive in dollar terms.

One leading foreign brokerage house in Jakarta said in its latest report on textile in the fourth quarter last year it expected Indorama to book a loss of 31.4 billion rupiah in 1998 but a profit of 89 billion in 1999.

Net loss expectations in 1998 resulted from a forex loss of 130.5 billion rupiah. The brokerage house used a year-end exchange rate of 9,000 rupiah to the dollar.

On the other hand, Barra's The Estimate Directory had a consensus of 56.3 billion rupiah net profit in 1998 and 121.2 billion net profit in 1999 for Indorama. Indorama's 1998 nine-month result showed a net profit of 7.86 billion rupiah.

One textile analyst at Panin Sekuritas said, however, that some textile companies are still prospective.

"Actually I don't think that all textile companies are bad," the analyst said. "Some of them still make profits in rupiah term despite the large forex loss, because of their big export sales."

The analyst mentioned Indorama, Roda Vivatex (RDTX.JK) and Ever Shine Textile (ESTI.JK) as relatively good textile stocks.

As of end of September 1998, Roda Vivatex had a bottom line of 58.3 billion rupiah, while Ever Shine Textile booked a 48.8 billion rupiah net profit.

Based on 1998 nine-month results, more than 50 percent of Indonesia's listed textile companies posted losses.