01/11/2007 (Tehran Times) - Indonesia is seeking a return to its exports heyday of the early 1990s, spearheaded by a glittering trade fair in Jakarta recently, but analysts warn that growth so far is bypassing its workers.

The massive fair was a celebration of Indonesia's recovery from the devastating 1997 Asian financial crisis, which ground exports from Southeast Asia's largest economy to a halt and left millions out of work.

Warehouses of space showcased high-quality exports ranging from stylish furniture to flat-screen televisions and electric scooters. It was an impressive show, but an elephant in the room wouldn't go away: China.

""We cannot compete with Chinese products on price because they're very cheap,"" said Fitri Irawan, the export manager of cosmetics producer Sekawan, which employs around 300 people.

""We compete on quality,"" she said.

The company has found a market niche for its mid-range skin-whitening soaps, shower gels and face cleansers in the Middle East and Africa, but has had little success elsewhere, Irawan said.

Indonesian exports have indeed been booming, but growth has been concentrated in commodity exports which employ relatively few people, analysts say.

High commodity prices drove up non-oil and gas exports by 19 percent to 60 billion dollars in the first eight months of this year compared to the same period last year, according to trade ministry figures.

But labor-intensive exports of the sort on display in Jakarta last week are lagging, said Chatib Basri, an economist and government adviser.

While average annual non-oil and gas export growth between 1996 and 2006 was 6.8 percent, growth in labor-intensive exports was only three percent, he said. The pre-crisis era of 1990 to 1996 saw labor-intensive exports grow at an average of 24 percent.

The collapse has been one of the ""key reasons behind the increase in unemployment"" in Indonesia, Basri said.

In 1997, more than 11.2 million Indonesians, or 12.9 percent of the overall labour force, were employed in manufacturing, according to government figures that include the non-labour-intensive palm oil industry.

Around 10 percent lost their jobs following the crisis, and although overall employment has returned to pre-crisis levels, manufacturing jobs now make up just 12.16 percent of the force, despite a current boom in palm oil.

As of March, Indonesia had an unemployment rate of more than 10 percent.

Indonesia's trade minister, Mari Pangestu, conceded that labor-intensive exports have not performed well.

""I think in labor absorption it has been less than we would have liked because we haven't seen the growth that we would have liked in the labor-intensive industries,"" she told AFP in a recent interview, referring to overall export growth.

Sri Adiningsih, an economist at Gadjah Mada University, said that Indonesia's manufactured goods are simply not competitive with China -- nor with Vietnam, Thailand or the Philippines.

""Even in Indonesia itself ... many (products from) China and Vietnam are flooding the markets such as clothing, shoes and toys,"" she said.

Advisor Basri said that the lagging performance stems from investor perceptions of Indonesia as a high-risk nation where production costs were relatively expensive thanks to corruption, a tangled bureaucracy, stringent labor regulations and a strengthening rupiah.

""Competitors have improved their standing on corruption and investment regulation, and some have substantially increased investment in infrastructure. Indonesia has not improved much,"" he told AFP.

Political sensitivity meant Indonesia was unlikely to change its labor laws, which include severance payments of two months wages for every year an employee has worked, Basri said. Attempts to change the law last year produced angry protests from workers and a back down from legislators.

In place of laissez-faire labor reform, Basri said Indonesia must curb inflation, rebuild its crumbling infrastructure and improve its investment climate. Minister Pangestu said the government has already been successful in attracting investment and that this should show up in export figures within a year.

And in place of comprehensive labor deregulation, she said the government would pass a regulation later in the year providing insurance for companies to cover redundancy payments.

In the meantime, companies such as Poly Jaya Abadi, a manufacturer of medical equipment with a stall at the trade fair, are struggling to find their niche in the global market.

""I think for medical equipment, we have better quality than Chinese products,"" boasted engineer Yuliagus Zulfikar. But so far, the market is not catching on -- Poly Jaya's only direct buyers are in Senegal.

--AFV--