THE SMES IN ORDER TO FACE THE AFTA AND GLOBALIZATION ERA

Abstract

Small and medium enterprises (SMEs) have contributed much to the growth of the economy in Indonesia. Further, this sector is also famous for its survival during the economic crisis in the late 1990’s or specifically the crisis began in the late 1997. The survival of the SMEs in Indonesia from that crisis has alerted the government and economic societies for not only concerning the economic development to the large enterprises as most of those large enterprises were collapsed during the crisis. Prior the crisis, the government focused on the development in capital tight industrial sectors in a big capital such as: in banking and manufacturing for mass production. Most of policies that were issued at that time enhanced the development of this sector such as: policies that eased inward investment in some particular business; policies to provide value added tax exemption in the bounded zone area, etc. If we look back to the crisis time, the collapse of the large enterprises was mainly caused by their lack of ability in paying their overseas debt, which was in US dollar currency. The SMEs could survive mainly because of two reasons. First, the SMEs’ business is mostly export oriented. They gained advantage from the payment which was in US dollar. The foreign exchange of US dollar to Indonesian currency, Rupiah, during the crisis was increased amazingly more than four times from the previous value. Second, most of the SMEs did not have liability with the foreign banks or foreign parties. Thus, they did not have to pay any liabilities in US dollar. This was in contrast to the large enterprises which mostly had liability with the foreign banks or parties. They had responsibility to give payment in US dollar which meant that their liability amount rose parallel to the increasing of US dollar’s value. The flexibility of the SMEs in their working capital side was one of their key factors in their survival from the crisis. The SMEs do not rely on their all working capital on foreign debt, they use their own capital or may have debt from local sources. Actually the government has already established a new department in regard to the development of the SMEs. The department is under the Ministry of Coopertives and Small Enterprises which was established in 1993. This department has also issued some policies and strategic programs for the development of the SMEs and the cooperatives sector in Indonesia. The core objective of the establishment of this department was to overcome the difficulties which were faced, either externally or internally. However, the crisis effectively encouraged the government to give more attention to the SMEs. This was in terms of giving them more opportunity to grow further to become strong large entities, rather than merely remaining at the small and medium stage. Another fact is that the SMEs are able to provide wide job opportunities, which Indonesia requires to deal with the increasing number of unemployment.