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The domestic textile industry is likely to find it harder to secure funding as banks become more reluctant to lend to a sector that will be hit hard by the implementation of the Asean-China Free Trade Agreement. That was the key conclusion of a Bank Indonesia survey unveiled on Tuesday.

“Banks believe the implementation of ACFTA beginning in early 2010 will lead to even tighter competition for the textile industry,” the survey report said. “Other sectors that will be avoided by lenders include property, especially the building of malls and apartments, as they see it as riskier to lend in the longer-term because the economy has not fully recovered.”

The situation could threaten the government’s efforts to increase the industry’s competitiveness. Industry Minister MS Hidayat has previously called on banks to lower lending rates for textile producers so they can revitalize their equipment to better compete with Chinese rivals.

Sofyan Bashir, president director of PT Bank Rakyat Indonesia, on Wednesday acknowledged that his bank would be more cautious in lending to the textile industry. However, he said that does not mean banks would cease lending to the industry altogether.

“I advise textile players to have a specific market so they do not have to worry about the ACFTA,” Sofyan said. “Currently, we have several debtors in the textile sector and we are still committed to providing them a lending facility. Some of them have a very specific market, such as making uniforms for soldiers, and they are still doing well. I do not think such a specific market would be affected much by the ACFTA.”

Sofyan said the government must provide sweeteners such as interest rate subsidies and guarantees to encourage banks to lend to the sector.

Yanuar Rizky, the president of the Indonesia Workers Association (OPSI), offered a more pessimistic view. He said the domestic textile industry will not survive the China free-trade agreement unless the government closes the FTA door long enough to give domestic producers time to adjust. He said textiles had become something of a “sunset industry” since 2004, with many factories closing and implementing massive layoffs.

“If the government moves ahead with the ACFTA, then it is better to become a distributor for mass textile products,” Yanuar said.

“Three things must be fixed to increase the industry’s competency: eliminating high costs, renewing equipment and providing cheap funding. Shut the door first, deal with the problem then we can go back to free trade.”