The bankruptcy declaration issued by PT Sri Rejeki Isman Tbk, or Sritex, on Oct. 21, 2024, serves as a warning that the national textile and textile products (TPT) industry is showing signs of decline.
This is despite the TPT industry experiencing positive growth before the COVID-19 pandemic.
According to data from the Indonesian Fiber and Filament Yarn Producers Association, as many as 30 companies have shut down over the past two years, while factories still operating are only working at 45-70% capacity.
Furthermore, more than 15,000 textile workers have been laid off from January to September 2024.
Responding to this issue, Dr. Boyke Rudy Purnomo, a lecturer at UGM’s Faculty of Economics and Business (FEB UGM), stated that the wave of layoffs in the textile industry is unsurprising.
According to Dr. Purnomo, the decline is caused by the contraction in global market demand, especially after the war between Russia and Ukraine. The pressure is further exacerbated by the massive influx of textile imports, particularly from China, which offers extremely low prices.
“The import relaxation due to Permendag 8/2024 has made Indonesian textile businesses feel like they’re being hit while down. They’ve failed to become masters in their own country,” Dr. Purnomo said on Monday (Nov. 18).
Dr. Purnomo briefly explained the background of PT Sritex’s bankruptcy, as declared by the Commercial Court of Semarang District Court.
According to the ruling, Sritex was found negligent in fulfilling its payment obligations to PT Indo Bharat Rayon, one of its creditors, amounting to IDR 100 billion.
From an economic perspective, bankruptcy occurs when a company lacks the financial capacity to meet its obligations to creditors.
“But it turns out that PT Indo Bharat Rayon is not Sritex’s only creditor. Sritex has debts to 28 national and international banks totaling USD 809.9 million, or approximately IDR 12.6 trillion, and are long-term debts,” he explained.
Meanwhile, according to the company’s financial report for the first half of 2024, Sritex’s total accumulated long-term debt reached USD 1.47 billion (IDR 22.8 trillion).
Short-term debt amounting to USD 131.4 million (IDR 2 trillion) is also added to this, bringing the company’s total liabilities to around IDR 25 trillion.
In this situation, the company is facing a capital deficiency of USD 980.56 million, or negative IDR 15.2 trillion. Even as a textile giant, Sritex faces the threat of being delisted from the stock exchange due to its poor financial and operational performance over the past four years. This shows that the company’s liabilities far exceed its assets.
“It’s clear that Sritex’s bankruptcy stems from a large amount of debt. They’ve bitten off more than they can chew,” he stated.
The government has repeatedly emphasized its efforts to save PT Sritex as part of its commitment to protect labor-intensive industries.
Although there is no plan for a bailout, and despite the disruption of export-import activities due to the bankruptcy ruling, PT Sritex is still allowed to operate.
According to Dr. Purnomo, this plan appears populist because it aims to maintain the image of Indonesian products in the eyes of global consumers.
“There’s nothing wrong with granting permission, but it must be remembered that the company is facing a mismanagement issue, particularly in financial aspects, and on the other hand, market saturation and inability to compete domestically are also major obstacles,” said Dr. Purnomo, who also serves as Secretary of the Department of Management at FEB UGM.
In addition to the bankruptcy appeal that has yet to receive a response from the Supreme Court, PT Sritex is facing a serious challenge regarding the availability of raw materials, which are predicted to run out in the next three weeks.
As a result of this raw material crisis, 2,500 employees have been temporarily laid off.
Although no decision has been made regarding permanent layoffs, and workers’ rights, such as wages, are still being paid by the company, if no immediate decision is made by the curators and supervising judge regarding the continuation of operations, the number of employees on leave will continue to rise.
The government’s solution will be a benchmark for the sustainability of Indonesia’s labor-intensive industries in the future.
“In the short term, the government needs to take various soft-landing measures for workers at risk of losing their jobs,” Dr. Purnomo suggested.
These efforts could include preparing new jobs for PT Sritex employees or providing adequate skills for those who want to start their own businesses, along with capital incentives.
Equally important, the government also needs to maintain a ‘revenue rescue’ program during the transition period while workers secure new jobs or become entrepreneurs.
For long-term solutions, the government needs to reconsider its textile import policy. This will ensure that local players have sufficient space to market their products.
“The import relaxation needs to be reviewed. In addition to the official imports, the government also needs to address several cases of illegal textile imports that have been proven to create unfair competition in the national textile industry,” Dr. Purnomo concluded.
Author: Triya Andriyani
Post-editor: Afifudin Baliya
Illustration: Freepik