AS132
This report was prepared for use within the Bank and its affiliated organizations. Public Disclosure Authorized They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized
ECONOMIC DEVELOPMENT OF INDONESIA
(in six volumes)
VOLUME IV
ANNEX 2 - INDUSTRY Public Disclosure Authorized
O ,--* February 12, 1968 0 o
0 0 Public Disclosure Authorized
Asia Department n
CD CURRENCY EQUIVALENTS
Currency Unit - Rupiah
Floating Rate (November 1967)
(1) B. E. Market Rate
U.S.$ 1. 00 = Rp. 150 1 Rupiah = U. S. $ 0. 007 1 Million Rupiahs = U. S. $ 6, 667
(2) Curb Rate
U.S.$ 1. 00 = Rp. 170 1 Rupiah = U.S.$ 0.006 1 Million Rupiahs = U. S. $ 5, 882 This report was prepared by a mission that visited Indonesia from October 17 to November 15, 1967. The members of the mission were:
0. J. McDiarmid Chief of Mission B. K. Abadian Chief Economist Jack Beach Power N. D. Ganjei Fiscal (I.M.F.) D. Juel Planning G. W. Naylor Industry (Consultant) G. J. Novak National accounts J. Parmar Industry R. E. Rowe Agriculture M. Schrenk Industry H. van Helden Transportation E. Levy (part time) Statistics Mrs. N. S. Gatbonton (part time) External Debt Miss G. M. Prefontaine Secretary
Messrs. R. Hablutzel and W. Ladejinsky also contributed to this report.
Since the mission's visit substantial changes have occurred in the effective exchange rate structure and prices have risen at a more rapid rate than during the previous months of 1967. These developments may require reconsidera- tion of the magnitudes in the 1968 budget. However they have not altered the basic conclusions of the mission in respect of the performance and prospects of the economy.
ANNEX 2
INDUSTRY
CONTENTS
Part I
page
Industrial Employment 1 Natural Resources Base 1 Investment Policy 1 Investment Resources 6 State Enterprises 10 Factors Adversely Affecting Costs 13 Tariff and Tax Policy 15 Arrangements for Providing Industrial Finance 18
Part II
Oil Industry 19 Textile Industry 31
Part III
Projects 41 1968 Program 41 Retarded Projects h Five-Year Plan 45 Technical and Managerial Assistance Requirements 50 Program Implementation 52 Management Training 53 Phasing of Work and Planning 54
Appendix 1 - 1968 Program 55
Appendix 2 - Retarded Projects 80
Appendix 3 - Development Finance Companies 99
INDUSTRY
PART I - GENERAL
Industrial Employment
1. The principal branches of industry in Indonesia were outlined in Chapter 6 of the main report. Adequate and up-to-date statistical information on production in specific industries is lacking but the composition of employ- ment by major industrial sectors and by regions in 1964 is shown in Tables 1 through 4. It will be noted that individual establishments were quite small, averaging less than 30 workers and that the concentration of industrial employ- ment on Java and Madura (about 88 percent) was somewhat greater than their share of the total population. About 54 percent of all industrial workers were engaged in the food and textile industries.
Natural Resources Base
2. Indonesia is rich in minerals, petroleum, and some staple agricultural and estate products suitable for industrial processing. Crude oil is produced in large quantities in Sumatra and Kalimantan, with important refining capacity at Palembang and Balikpapan. There is off-shore drilling north of eastern Java and plans for further exploration exist elsewhere. Total production of crude presently is about 27 million metric tons per annum, about a quarter of Iranian output and 5 percent of the whole Middle East; natural gas is available in quantities considerably beyond the capacity of existing processing installations. Mineral products which are mostly exported in the form of ore include tin, nickel, manganese,bauxite, sulphur and phosphate. Deposits which are not yet being exploited but explored include copper in West Irian. Production of the low grade coal declined as a consequence of substitution by petroleum for domestic use. However, projects exist for utilizing the coking coal and iron ore deposits in South Sumatra and Kalimantan for the production of steel. Similarly, a project of long standing which has never been executed is the production of aluminum from domestic bauxite presently exported to Japan, using the large hydro-electric potential of North Sumatra.
Investment Policy
3. Considering Indonesia's natural resources, and also the size of the potential domestic market for products of manufacturing industry, the policy in the recent past has been to promote this sector principally from the raw material base up, by establishing metallurgical industries and, to some extent, heavy chemical industry based on petroleum. However, these large-scale basic industries are a relatively recent endeavour and most of them have not reached fruition. The increasing population pressure on Java-Madura and the general diligence of the labor supply are favorable factors arguing for greater industrialization particularly in import substitution industries. Population can be expected in future to outgrow the absorptive capacity of Javanese agri- culture very substantially. Emigration to the Outer Islands has been attempted SI ³ -- --- . \ ¿ _ ½ ,. ¿ ,. ½