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 The report may not be published nor may it be quoted as representing their views.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 ³7 - ½ 31 i :°_-- - ° " .. ³---. --i º b ² а 1 g В Å 3t ´ i о. 1» »" »´ , ь 3$ $ > ¸ 9 '3 pl .а. ´' ' !l ¡ ¹ : р 1 1 1! 1 ´ 1 £² ¯ g ^ 1 1 .О L И ` А g fi ,I i ½ i » <, . ; $ « " ´ 1р ,I J1 ½ А f I º . е ¹ - Çt i 3l t Ï ,I t ,; ² J ri ` 1 1 1 F ! а L'´ » » ½ ¹ I , ' ё ё g " рS ½ ½º' ,4 S.- bt ."" I Е^' » .n _ ÃС Å" а" i a ' . ½ о . ' R R ¡ 1½. w оf ½ ² ½ . ½ . ² I1. А М ' ' , А Ï "е "а i а ´ asxà ´ ЗЕ '1 А а J ² а I h 1 I 1 ´ 8 ºÏ i а ² ¶ $ ", -- . ¡ е ½ à ! ' ´ S А .,. е ! ! 3 А а ' l f : " ÃС : I - s s1 8 J ._ t: I ti ¹ i ¡1 Table 2: STRUCTURE OF r_MPLOYMFXT, BY REGION, MID 1964 JAVA & P R 0 V I N C E BALI INDUSTRY MA13UFLA WWT JA VA MID-JAVA EAST JAVA JOGJAKARTA DJAKARTA SUMATRA KALIMANTAN SULAWESI 111USATENGGARA MA LU KU WEST IRIAN TOTAL FOOD MANUFACTURING 23.2 20.2 19.5 33.4 8.7 5.7 24.7 30.1 28.9 25.6 6.6 14.8 23.5 BEVERAGES .6 .5 .3 .7 .5 1.1 1.0 1.7 1.5 .4 4.3 7.6 0.7 TOBACCO 16.1 .1 21.4 27.5 8.o .1 2.8 - .1 36.1 - - lh.7 TEXTILES 31.2 46.9 42.8 15.8 58.2 19.7 9.2 .1 35.c) 21.8 28.9 01 MANUFACTUREn TEXTILE GOODS 1.5 1.5 .5 .8 1.2 6.3 .2 .5 1.6 .2 .7 1.4 WOOD 1.7 .9 1.0 2.6 1.1 1.6 10.4 15.4 7.0 .7 46.1 14.8 2.7 FJRNITURE .9 .6 .8 1.1 1.4 .8 .9 1.1 1.8 1.3 12.5 - 0.9 PA PER 1.0 .8 .8 1.1 - 2.3 .8 - .1 - - - 1.0 PRINTIWS 2.4 1.9 1.3 1.1 5.7 9.3 2.8 3.7 4.6 1.8 10.5 .9 2.5 LEATHER .5 .4 .2 .5 1.5 1.6 .2 1.9 .1 - - - o.5 RUB3EF 5.3 12.8 3.7 1.5 .1 7.6 28.8 36.9 - 1.4 - - 7.5 CHEMICALS 2.8* 1.6 1.5 3.0 1.4 7.5 5.o .4 3.4 1.1 12.9 - 2.9 NON-KETAL MINERAL 3.8 6.5 2.9 3.8 4.5 5.2 1.8 6.7 4.8 - 9.0 3.9 kiETAL PRODUCTS 2.9 1.8 1.5 2.8 4.1 8.7 1.0 1.2 1.0 1.7 - 2.7 IIANUFACTURE & REPArR-MACHINERT .6 .5 .2 .9 .6 .7 .9 .3 .1 - o.6 4ANUFACWRE & REPAIR-ELECTRICAL MACHINERY .7 .4 .2 .6 .1 2.7 .5 .2 - - o.6 rRANSPORT BMPMENT 3.7 2.2 1.5 2.5 1.2 16.8 4.8 h." 7.5 .9 - 52.1 3.9 ffISCELLANEOUS 1.1 .5 .5 1.2 2.6 2.9 .6 .2 .4 2.5 7.0 - 1.1 TOTAL 100 100 100 100 100 100 lco 100 100 100 100 IDO 100 40TE: Totals may not add up to exactly 100 due to rounding. ;ource: Central Bureau of Statistics, Industrial Census 1964, Djakarta 1967. Table 3: STRUCTURE OF h&PLOTMENT, BY MAJOR INDUSTRIES, MID 1964 Region: Region: Region: BALI & Region: Region: JAVA & Province: Province: Province: Province: Province: Region: Region: TOTAL IN'DUSIRY SUMATRA KALIMANTAN SALAWESI MUSATEN3GARA MALUKU WEST IRIAN MA DUiA ii. JAVA MID-JAVA EAST JAVA JOGJAKARTA DJAKARTA 1.4 1.7 .9 * * 100 86.8 17.4 17.4 48.7 1.0 2.4 9.1 00f MANUrACTURIN 3.0 3.3 .5 .2 .5 100 79.3 13.9 9.7 37.h 2.2 16.1 13.2 EVERAGES - * 2.1 - - 100 96.2 .2 30.4 64.1 1.6 .1 1.7 100 OBACCO 5.7 6.6 2.8 * 1.7 .6 - - EXTILES 94.9 32.8 30.9 18.8 .L 1.7 .1 - * 100 21.4 7.6 21.1 2.4 4h.0 1.2 ANUFACTURED TEXTIL GOODS 96.5 3.7 .1 .4 .2 100 7.0 7.8 33.5 1.2 5.7 33.9 6.6 10o 55.0 1.2 .4 - 100 85.5 13.9 17.0 41.2 4.3 9.0 8.8 1.3 2.8 "URNITURE .1 - - - 100 APER 93.2 15.4 16.0 39.6 - 22.2 6.7 - .6 .1 * 100 15.5 11.2 15.5 6.6 36.5 9.7 1.7 2.6 PIrNTIm 85.2 - - 100 14.4 9.6 30.7 8.0 28.8 4.1 i.1 .3 - .ATHER 91.5 - - - 100 61.3 34.5 lo.4 6.7 * 9.7 33.0 5.5 !UBBER 1.4 24.8 14.8 .1 1.6 .3 .1 - 100 'HEMICALS 83.0 11.3 10.9 34.5 .1 100 11.1 11.4 .5 2.4 1.0 - MINERAL 84.6 33.6 11.5 25.6 2.7 ION-METAL 4.3 30.8 3.1 .5 .5 .5 - - 100 fETAL PRODUCTS 95.3 13.1 11.9 35.3 - 100 2.6 11.2 13.