Indonesia seeks to get back its manufacturing mojo

Mon Oct 14, 2013 10:39am EDT
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By Randy Fabi and Jonathan Thatcher

BANDUNG, Indonesia (Reuters) - In PT Trisula International's (TRIS.JK: Quote) hangar-sized factory outside the western Indonesian city of Bandung, hundreds of workers stitch together clothes for some of the world's top brands.

Amid the clatter and hum of their machines are hopes for a renaissance that can restore Indonesia's place among Asia's big manufacturing economies, a status it lost in the mid-1990s.

As Southeast Asia's biggest economy slows, its current-account deficit widens, and its rupiah currency tumbles, policymakers are hoping factories like this will emerge as a new export engine.

But this year, Trisula, whose clients include German luxury-clothing maker Hugo Boss AG (BOSSn.DE: Quote), shelved plans to buy machinery to lift production by 25 percent, fearing a margin squeeze from higher wages.

"A lot of people aren't expanding in a big way because they are concerned about the rising wages," said Lalit Matai, director of marketing at Trisula.

The company's struggle to grow, as workers demand more pay, reflects a broader challenge as Indonesia tries to wean itself off the boom-to-bust cycle of commodity prices.

Exports of processed and unprocessed natural resources, combined with an influx of foreign investment, ignited a domestic consumption boom in the country of 250 million people and drove the economy along at more than 6 percent growth.

But that model is under pressure, as commodity prices flatten or fall, inflation accelerates and the current-account gap exposes a structural imbalance that economists say strong manufacturers could mend.   Continued...

Workers take their lunch at PT Trisula Garmindo Manufacturing in Bandung, West Java province September 17, 2013. REUTERS/Beawiharta \