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.