SME Export Performance in Indonesia After the Crisis

Firms in export-oriented sectors with more exporters and more foreign investment, or firms with more access/use of credit, tend to export a higher share of their output, whether they are small or large. The latter points out that the benefits of size-neutral policies that improve the overall business and foreign investment climate and secure access to formal credit for all enterprises produce benefits for the entire economy. Small firms with higher use of machinery and higher use of domestic inputs displayed a higher likelihood to increase the share of their output exported. SMEs show rising productivity with access and use of appropriate production inputs. Decades of protective size-specific policies, such as the reservation scheme for SMEs still in place in Indonesia’s manufacturing may have distorted, more than supported, adoption of appropriate technologies among SMEs. These policies may need to be revisited and refocused on more size-neutral policies such as improved access to collateral or reduced cost of business registration and licensing.     

PRODUCTIVITY AND FIRM DYNAMICS: CREATIVE DESTRUCTION IN INDONESIAN MANUFACTURING, 1994–2000

This paper examines the entry and exit, and the labour productivity, of Indonesian manufacturing firms with 20 workers or more, using a firm-level panel dataset constructed for the years 1994–2000. Overall change in manufacturing labour productivity reached 27.2%—an average growth of 3.5% per annum—between 1994 and 2000, a period that includes the 1997–98 Asian financial crisis, which hit Indonesia hard. Vibrant firm dynamics characterised this period, in which about 10% of manufacturing enterprises were renewed in any one year. By 2000, one-third of all enterprises in existence in 1994 had closed, but the number of enterprises that closed was lower than the number that entered and survived up to the year 2000. The replacement of exiting firms with newly entering firms contributed significantly to increases in overall labour productivity. Regulatory reform in support of this process should lead to gains in productive employment for Indonesian workers.     

The Asian Crisis, the IMF and Dr Mahathir

While in the literature concerning the Asian crisis extensive coverage has been given to the course of events in the countries implementing IMF-supported programmes, scant attention has been paid to other countries that also suffered from the crisis. Potential alternatives to the IMF way of handling the crisis are thus in danger of being neglected. The project on which this paper is based was funded by the Indo-Dutch Program on Alternatives in Development (IDPAD) in collaboration with the Indian Council of Social Science Research (ICSSR).